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.
Who is an independent director?
An independent director is a non-executive director of the company. Independent director refers to a member of a board of directors who does not have a material relationship with a company and is neither part of its executive team nor involved in the day-to-day operations of the company.
According to section 149 of the companies Act, 2013, an independent director in relation to a company, a director other than managing director and whole-time director or a nominee director.
· Who is or who was not a promoter of the company or its holding, subsidiary or associate company and who is not related to promoters or directors in the company.
· Who has or had a pecuniary relationship with the company.
· None of whose relative has or had a pecuniary relationship with the company.
· Who possess the qualifications as may be provided.
An independent director should not be a partner or executive director of the auditors, lawyers, consultants of the company in preceding three years and should not hold 2% or more than that of shares in the company.
How is an independent director appointed in a company?
The appointment of the director of the company shall be approved in the shareholders meeting. The appointment of an independent director is formalised through the letter of appointment, which shall include.
· Term of appointment
· The expectations of the board-level committee from the appointed director.
· The duties along with liabilities
· Provisions for directors insurance, if any.
· The actions which the director does not have to perform while operating in a firm.
· The remuneration, profit related commission, expenses.
· The code of business ethics
The report of an independent director shall be on the basis of the report of performance evaluation.
ROLE OF AN INDEPENDENT DIRECTOR
Independent director acts as a guide and mentor to the company. An independent director role is to improve a company’s credibility and helps in risk management. They are responsible for ensuring better governance by actively participating in various committees set by the company. The following roles are:
· Fulfilling useful role in succession planning in the company.
· He must support in the issues like strategy, risk management, key appointments and performance.
- scrutinizing, monitoring and reporting management’s performance regarding goals and objectives agreed in the board meetings
- balance the conflicting interest of the stakeholders
- · Safeguard the interest of the shareholders, particularly minority shareholders.
- · Establishing a suitable level of remuneration.
DUTIES OF AN INDEPENDENT DIRECTOR
- The duties of the independent director are:
- · To attend the company’s general meetings.
- · To attend the Board of directors meeting and board committees meetings.
- · Should have the knowledge of the company and the environment in which it operates
- · Not to disclose confidential and official information including commercial secrets and technologies.
- participate in the Board’s committee being chairpersons or members of that committee
- Acting within the authority and protecting the interest of shareholders and its employees.
Independent directors have a crucial role to play in the functioning of the company.