File Copyright Online - File mutual Divorce in Delhi - Online Legal Advice - Lawyers in India

Independent Director

As per s. 149(6) of Companies Act, 2013, a director who meets the requirements for Integrity, expertise, and experience, as well as the exclusionary relationships test, but is not the managing director, whole-time director, or nominated director is called as an Independent director. It is further explained below:

A person of integrity:

Integrity is not a legal term. According to Black Law Dictionary, a person's integrity refers to their moral ideals and character. The Nomination Committee and the BODs conduct a qualitative interpretation of the candidate's integrity against minimal legal criteria or expanded standards.

Expertise and experience:

Independent Directors should have a good mix of skills, experience, and expertise in at least one of the following areas: finance, legal, managerial, sales, promotion, administration, analysis, and corporate governance.

Exclusionary relationships:

An Independent Director must not be connected to the company's promoters and must be separate from the company's management. During the existing and two prior financial years, has and had no pecuniary involvement with the company, its holding, subsidiary, or associate company, or their promoters, or directors, save from director's salary. Restriction on who can own shares in a corporation. There are no present or former professional contacts that are forbidden.

Legal duties of Independent Directors:

  1. Fiduciary duties:
    The duty of independent directors, the first one would be fiduciary responsibility. The concepts of fiduciary duty encapsulate their legal obligations. In "CBSE and Anr. Vs. Aditya Bandopadhyay and Ors.", it was held that the dealing with the beneficiary or objects belonging to the beneficiary, the fiduciary is required to act in trust and for the gain and benefit of the beneficiary, and to behave in good conscience and fairness.

    Fiduciary duty is categorised into two functions i.e., duty of care and duty of diligence. A duty of care implies a responsibility to act with reasonable caution, which includes a responsibility to carefully consider problems that come before them. As per s. 166 (3) of Companies Act, 2013, the duty of care requires directors to make decisions after careful consideration, balance in decision, and knowledge of key data and details. Section 166 (3) of the California Code of Regulations.

    In "Smith v. Van Gorkom", it was held that the directors are required to inform all the available data or information to themselves before taking/making a decision. In law, due diligence entails doing everything which is reasonable, not everything that is possible. It refers to reasonable diligence, or the kind of diligence that a competent individual would use in his own activities.
  2.  Duty of Loyalty:
    Directors must act in the best interests of the company; as per the Duty of Loyalty. Directors are required under their duty of loyalty not to engage in transactions that create a conflict of interest. As construed by the courts, the duty of loyalty requires directors to act in the best interests of the corporation as in held in the case of Dale and Carrington invt. P. ltd vs. PK prathapan and Ors. Duty of loyalty even includes duty towards shareholder i.e., to make a full and honest disclosure of all material information when soliciting shareholder action. The duty of disclosure regarding all related affairs of a company is an application of both the duties of care and loyalty.
  3. Duty of demonstrating good faith:
    Scheduling, evidentiary, recording, and archiving methods must be established. IDs must also set the standard conduct and tone for the company. Various others are instituting oversight role that act independently, supervision of control system, threats, data, procedures, and so on, addressing variances and demonstrating corrective measures, expansion of concepts of fair play and reasonable pricing, particularly with involved entities or parties with considerable influence, expose effectively.

Accountability of Independent Directors (IDs):

As per s. 149 (12) of CA, 2013, only actions of commission or omission by a corporation that happened with the knowledge, attributable through board proceedings, and with permission or connivance of ID, or if he had not behaved conscientiously, are subject to legal accountability. This is the same as the "business judgement rule" which is used in US. The safe harbour provisions must be invoked.

Liability of IDs:
IDs work together to achieve a common aim of improving corporate governance standards. Nevertheless, in terms of identifying liability, each ID is solely liable for the proper execution of his or her tasks. The liability of IDs is decided only after substantive and demonstrative assessment. The liability restrictions under the "officer of default" stated under S. 2(60), CA 2013, can be mitigated if the ID can demonstrate to the judges that the decision has been made with reasonable deliberation and in good faith.

Functions of IDs:
The functions of IDs are categorised into two main function i.e., advisory functions (consulting management) and oversight functions (monitoring management). The IDs must intervene in many areas of the company such as strategy, performance, financial reporting, internal controls and risk, people and so on. The independent directors also has a responsibility to safeguard the interests of all the stakeholders of the company (especially minority). The stakeholders of the company meant all those who have interest on the company, its functioning, its growth and development. They may be its employees, shareholders, protection of environment etc.

IDs in Board committees:
Existing Board members are divided into committees based on their level of competence. Committees need independent directors because of their specific subject-matter expertise and relevant business experience, as well as to inculcate independent thinking. The role of IDs is not one that is broad in scope. In their particular fields, they are experts. Finance, law, management, sales, marketing, administration, research, corporate governance, technical operations, and other disciplines connected to a company's business are mentioned as areas of study for IDs under CA2013.

The level of competence required of an ID varies depending on the committee with which they are affiliated. Members of the Audit Committee, for example, must be able to read and comprehend financial statements. As a result, they will be assigned to the committee in which they are expertised.

Law Article in India

Ask A Lawyers

You May Like

Legal Question & Answers

Lawyers in India - Search By City

Copyright Filing
Online Copyright Registration


How To File For Mutual Divorce In Delhi


How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...

Increased Age For Girls Marriage


It is hoped that the Prohibition of Child Marriage (Amendment) Bill, 2021, which intends to inc...

Facade of Social Media


One may very easily get absorbed in the lives of others as one scrolls through a Facebook news ...

Section 482 CrPc - Quashing Of FIR: Guid...


The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of t...

The Uniform Civil Code (UCC) in India: A...


The Uniform Civil Code (UCC) is a concept that proposes the unification of personal laws across...

Role Of Artificial Intelligence In Legal...


Artificial intelligence (AI) is revolutionizing various sectors of the economy, and the legal i...

Lawyers Registration
Lawyers Membership - Get Clients Online

File caveat In Supreme Court Instantly