CRITERA of INDEPENDENCE

Sub-section (6) of Section 149 of the   Companies Act, 2013, prescribed the criteria for
independence w.r.t. relation with promoters, holding company, subsidiary company,
associate company, transactions through relatives, shareholding in the company,
appointment of firm of auditors or company secretaries in practice or cost auditors or any
legal or a consulting firm, etc. The independent director shall ensure that the said criteria of
independence are complied with during the tenure as independent director in the company.

MANNER OF APPOINTMENT

 Firstly, diligently select a person proposed to be appointed as an independent

director and ensure that he possesses appropriate balance of skills, experience and
knowledge in the Board. The proposed person may be selected from the database of
Independent directors maintained by any body, institute or association authorized
by CG.
 Ensure the proposed person to be appointed as Independent director in the
company fulfils the conditions specified in Sec 149(6) and Rule 5 (Companies
(appointment and qualification of Directors) Rules, 2014)
 Before appointment of individual as Independent Director obtain consent to act as
Director in Form DIR-2.

IMPORTANT POINTS TO BE TAKEN INTO CONSIDERATION

An independent director shall hold office for a term up to 5 consecutive years on the Board
of a company. He shall be eligible for reappointment on passing of a special resolution by
the company and disclosure of such appointment in the Board’s report. An independent
director shall not hold office for more than two consecutive terms. Such independent
director shall be eligible for appointment after the expiration of 3 years of ceasing to become
an independent director. During the period of 3 years, an independent director shall not be
appointed in or be associated with the company in any other capacity, either directly or
indirectly. With the reference to the same, the following are some points to be taken into
consideration.

1. maximum number of directors as per the articles of association of the company

2. proposed appointee is not disqualified to be director of the company under Section
164 of the Companies Act, 2013.
3. declaration from the proposed appointee about his disqualification under Section
164. The declaration shall be in prescribed form. The declaration shall be obtained
before a person is either appointed or reappointed as a director in a company.
4. the proposed appointee has given his consent (as prescribed under Section 152(5)
of Companies Act, 2013) to hold the office as a director of the company
5. compliance relating to the approval of Nomination and Remuneration Committee (as
prescribed under Section 179 of the Companies Act, 2013)
6.  the company/Board of Directors shall confirm whether the independent director
possesses requisite skills and experience
7. disclosure of interest of independent director under Section 184 of the Companies
Act, 2013
8. confirm that the independent directorships of independent director does not exceed
the prescribed number of companies (as required under SEBI Listing Regulations)
9. confirm that the Managing Director or whole-time director of the company does not
serve as independent director in more than prescribed number of companies (as
required under SEBI Listing Regulations)
10. disclosure of information to the shareholders before appointment and reappointment
of director about the disclosure of information to the shareholders before
appointment and reappointment of director about the profile, expertise, other
directorships, etc
 11. compliance of Schedule IV of the Companies Act, 2013 by the company and
independent director
12. remuneration to independent directors shall not exceed the limits prescribed under
Section 197 of the Companies Act, 2013, and the same shall be approved by the
shareholders
13. confirm whether the company has filed a return (Form DIR-12) with the registrar of
Companies for the appointment and reappointment of independent directors.

SEBI REGULATIONS

1. It may be noted under Regulation 17 of SEBI LODR has provided as under.

 The Board of Directors of a listed company shall have an optimum
combination of executive and non-executive directors with at least one-
woman Director and not less than 50% of the Board comprising of non-
executive directors.
 Where the Chairman of the Board is a non-executive director, at least one-
third of the Board shall comprise of Independent Directors.
 If the company does not have a regular non-executive Chairman, at least
50% of the Board should comprise of Independent Directors.
 The quorum for every meeting of the board of directors of the top 1000 listed
entities with effect from April 1, 2019 and of the top 2000 listed entities with
effect from April 1, 2020 shall be one-third of its total strength or three
directors, whichever is higher, including at least one independent director.
 Independent directors shall not be entitled to any stock option.

2. As per SEBI LODR regulation 25(1) No person shall be appointed or continue as an

alternate director for an independent director of a listed entity.
3. A person may serve as an Independent Director in maximum seven (7) listed
companies. (b) Any person serving as a Whole-time Director in any listed company
shall serve as an Independent Director in maximum three (3) listed companies.

Reserve Bank of India Report on corporate governance

https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=221

Companies Act. 2013

https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf

Companies (appointment and qualification of Directors) Rules, 2014

https://taxguru.in/company-law/companies-appointment-qualification-directors-fifth-
amendment-rules-2019.html