Procedures under Companies Act, 2013

Appointment of an Independent Director

  • Independent Director: A Director other than a Managing Director or a Whole Time Director or a nominee Director who fulfills all criteria as given under section 149(6). [Section 2(47) & 149(6) read with Rule 5 of Companies (Appointment and Qualification of Directors) Rules, 2014]

  • Compulsion to appoint an Independent Director:

  • Every listed public company shall have at least one-third of the total number of directors as independent directors and the following classes of companies are required to appoint at least two directors as independent directors (In case, they are required to appoint higher number of independent director due to the composition of its Audit Committee, such higher number of Independent director shall be applicable to it-).:

    • Public Companies having paid up capital of Rupees ten crore or more; or

    • Public Companies having turnover of Rupees one hundred crore or more; or

    • Public Companies having aggregate outstanding loans, debentures and deposits, exceeding Rupees fifty crore. [Section 149(4) & Rule No. 4 of Companies (Appointment and Qualification of Directors) Rules, 2014]

  • Where a company ceases to fulfill any of three conditions as mentioned above and laid down in Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014 for three consecutive years, it shall not be required to comply with these provisions until such time as it meets any of such conditions. It is further clarified that, the paid up share capital or turnover or outstanding loans, debentures and deposits, as the case may be, as existing on the last date of latest audited financial statements shall be taken into account. [Third Proviso to Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014).

  • Any intermittent vacancy in the office of an independent Director shall be filled up by the Board till immediate next Board Meeting or within three months from the date of such vacancy, whichever is later. (Second Proviso to Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014

  • Tenure of an Independent Director:

    • An independent Director shall hold office for a term up to 5 consecutive years, but shall be eligible for reappointment on passing of a special resolution by the company and disclosure of such appointment in the Board's report. [Section 149 (10) ]

    • No independent director shall hold office for more than two consecutive terms, but such independent director shall be eligible for appointment after the expiration of 3 years of ceasing to become an independent director. Provided he shall not, during the said period of 3 years, be appointed in or be associated with the company in any other capacity, either directly or indirectly.[Section 149 (11) ]

The following procedure is to be followed for appointment of an independent director of the company -

1. With due diligence select a person proposed to be appointed as an Independent Director and ensure that there is appropriate balance of skills, experience and knowledge in the Board. Person may be selected from databank of Independent Directors maintained by any Body, institute or association authorized by Central Government in this behalf. (Rule 6 of Companies (Appointment and Qualification of Directors) Rules, 2014).

2. Ensure that the individual proposed to be appointed as an independent director must fulfill the condition specified in Section 149(6) and Rule 5 of Companies (Appointment & Qualification of Directors) Rules, 2014.

3. Ensure that the individual proposed to be appointed as an independent director does not suffer from any disqualification mentioned under Sections 164 and 165 of the Act.

4. Ensure that the person who is proposed to be appointed as Independent Director must have Director Identification Number (DIN) before being appointed as director. [Section 152(3)]. If he does not have DIN, follow the procedure prescribed for obtaining DIN.

5. Ensure that person proposed to be appointed as an Independent director has furnished his DIN to the Company and a declaration in Form DIR 8 stating that he is not disqualified to become a director under the provisions of Companies Act,2013. [Section 152(4) and Rule 14 of Companies (Appointment & Qualification of Directors) Rules, 2014 ]

6. Before appointing a person as Independent Director, Obtain his written consent to act as Director in Form No. DIR-2 along with the Following Documents:

a) Valid Id Proof

b) Valid Address Proof

[Section 152(5) and Rule 8 of Companies (Appointment and Qualification of Directors) Rules, 2014].

7.A.: If resolution for appointment is proposed to be considered at BM:

7.A.1 Issue not less than 7 days notice and agenda of Board meeting, or a shorter notice in case of urgent business, in writing to every director of the company at his address registered with the company (Section 173(3). Also follow the procedure prescribed for issuing, signing of notice and convening of Board Meeting.

7. A.2 Hold a meeting of Board of Directors and ascertain whether quorum required for Board meeting under Section 174 is present. Then pass the following resolutions -

Board Resolution for appointment of an Independent Director to hold office upto a period of 5 years, subject to approval of shareholders at general meeting of the company.

To authorize Company Secretary or any Director to sign and file the relevant form with Registrar of Companies and to do such acts, deeds and things as may be necessary to give effect to the Boards decision.

To fix day, date, time and venue for holding general meeting of the Company

To approve the draft notice of general meeting along with explanatory statement annexed to the notice as per requirement of the Section 102 of the Companies Act, 2013.

To authorize the Director or Company Secretary to sign and issue notice of the general meeting.

7.B: If resolution for appointment is proposed to be considered by circulation:

7.B.1 The Chairman of the Board or in his absence, the Managing Director or in his absence, the Wholetime Director and where there is none, any Director shall decide, whether the approval of the Board for a particular business shall be obtained by means of a Resolution by circulation. (Point 6.1.1 of Secretarial Standards -1)

7.B.2 The draft resolution for appointment of an Independent Director to hold office upto a period of 5 years, subject to approval of shareholders at general meeting of the company, together with necessary papers shall be sent to all the Directors individually on the same day by hand/speed post/registered post/courier/e-mail/any other recognised electronic means to his email or postal address registered with the Company and in the absence of such details, to any address appearing in DIN registration details of the concerned Director. (Point 6.2.1 and Point 6.2.2 of Secretarial Standards -1)

7.B.3 The proposed agenda shall be explained by a note setting out the details of the proposal, relevant material facts that enable the Directors to understand the meaning, scope and implications of the proposal, the nature of concern or interest, if any, of any Director in the proposal, which the Director had earlier disclosed and the draft of the Resolution proposed. The note shall also indicate how a Director shall signify assent or dissent to the Resolution proposed and the date by which the Director shall respond. (Point 6.2.3 of Secretarial Standards -1)

7. B.4 Directors shall not be given more than seven days from the date of circulation of the draft of the Resolution, to respond. (Point 6.2.3 of Secretarial Standards -1)

7.B.5 If min. 1/3rd of Directors require the Resolution under circulation to be decided at a Meeting, the Chairman shall put the Resolution for consideration at a Meeting of the Board. (Point 6.1.2 of Secretarial Standards -1).

7.B.6 The Resolution is passed when it is approved by a majority of the Directors entitled to vote on the Resolution, The Resolution, if passed, shall be deemed to have been passed on the last date specified for signifying assent or dissent by the Directors or the date on which assent from more than two-third of the Directors has been received, whichever is earlier, and shall be effective from that date, if no other effective date is specified in such Resolution. (Point 6.3 of Secretarial Standards -1)

7.B.7 Resolutions passed by circulation shall be noted at the next Meeting of the Board and the text thereof with dissent or abstention, if any, shall be recorded in the Minutes of such Meeting. (Point 6.4 of Secretarial Standards -1)

8. Prepare and circulate draft minutes within 15 days from the date of the conclusion of the Board Meeting, by hand/speed post/registered post/courier/e-mail to all the Directors for their comments. Alsofollow the procedure prescribed for preparing, circulation, signing and compiling of Board Minutes.(Secretarial Standards-1 )

9. The explanatory statement annexed to the notice of the general meeting for approving the appointment of an Independent Director shall indicate the justification for choosing the appointee and include a statement that in the opinion of the Board, the person proposed to be appointed as an independent Director fulfills the conditions specified in the Companies Act 2013 and rules made there under. and that the proposed director is independent of the management. [Section 150(2) and Proviso to Section 152(5)]

10. Send notice of the General meeting proposing the resolution to all the shareholders, directors, auditors and other person entitled to receive it, by giving not less than clear 21 days notice or a shorter notice, if consent for shorter notice is given in writing by at least 95% of members entitled to vote at such meeting, either in writing or through electronic mode. (Section 101) . In case of fresh appointment, resolution is proposed to be passed as an ordinary resolution. In case of re-appointment, resolution is proposed to be passed as Special Resolution. (Schedule IV and Section 149(10). Also follow the procedure prescribed for issuing and signing of notice and convening of General Meeting.

11. Ensure that the Company receives, at least 14 days before the General Meeting at the registered office of the Company, a notice in writing signed by the proposed appointee or any member proposing his candidature for the office of Director along with the deposit of one lakh rupees. (Section 160 (1)

12. Company shall, at least seven days before the General Meeting, inform the members about the candidature of a person for the office of Director or intention of member to proposed him as candidate for that office either by :

a. Serving individual notice on the members either in writing or through electronic mode (to such members who have provided their email address for communication) and by placing notice of candidature or intention on the website of the Company, if any. OR

b. By advertising such candidature or intention once in vernacular newspaper in principal vernacular language of the district in which registered office of the Company is situated and circulating in that district and once in English language in English newspaper circulating in that district.(Section 160(2) and Rule 13 of Companies (Appointment and Qualification of Directors) Rules, 2014

13. Hold the general meeting on fixed day and pass the requisite Ordinary/Special Resolution in accordance with Section 114 (1) of the Act.

14. If the proposed appointee gets elected as Directors or gets more than 25% of total valid votes cast either on show on hands or on poll, refund the deposit amount of Rupees One Lacs to the appointee or concerned member, as the case may be. (Section 160(1)

15. The company and independent directors shall abide by the provisions specified in Schedule IV i.e. Code for Independent Directors. [Section 149(8) of the Companies Act, 2013].

16. Issue the appointment letter to the independent director containing the following details as per Schedule IV:

    (a) the term of appointment;

    (b) the expectation of the Board from the appointed director; the Board-level committee(s) in which the director is expected to serve and its tasks;

    (c) the fiduciary duties that come with such an appointment along with accompanying liabilities;

    (d) provision for Directors and Officers (D and O) insurance, if any;

    (e) the Code of Business Ethics that the company expects its directors and employees to follow;

    (f) the list of actions that a director should not do while functioning as such in the company; and

    (g) the remuneration, mentioning periodic fees, reimbursement of expenses for participation in the Boards and other meetings and profit related commission, if any.

    (An independent director shall not be entitled to any stock option and may receive remuneration by way of fee provided under Section 197(5), reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members- Section 149(9).

17. Terms and conditions of the appointment shall also be posted on the website of the company.(Schedule IV)

18. Obtain the declaration from the appointed Director regarding his interest in other entities in Form MBP.1 within 30 days of appointment or at the first Board Meeting in which he participates as Director, whichever is earlier. (Section 184(1) read with Section 189(2).

19. File a return containing the particulars of appointment of director, with the Registrar in E-Form No. DIR-12 along with such fee as may be provided in the Companies (Registration Offices and Fees) Rules, 2014 within 30 days of such appointment. [Section 170(2) and Rule 8 and 18 of Companies (Appointment and Qualification of Directors) Rules, 2014]

Following details/documents are required for filing E-Form No. DIR-12:-

    (a) Letter of appointment;

    (b) Details of interest in other entities.

    (c) Consent of the appointee director in Form No. DIR-2, along with self-attested copy of ID & Address Proof

    (d) Extract of the Resolution passed for the appointment of Independent Director.

    (e) Any other document as may be applicable and/or prescribed.

20. In case of resolution proposed as special resolution for re-appointment of independent Director, file a certified copy of special resolution with the Registrar in E-Form No. MGT.14 within 30 days of the date of general meeting along with the following attachments:

    a. Copy of Special Resolution passed along with Explanatory Statement

    b. Notice of General Meeting

    c. Consent letter from members for shorter notice, in case the meeting was convened at a shorter notice.

    d. Any other attachment as may be applicable.

21. At the first Board Meeting attended by the independent Director, obtain the declaration from independent Director that he satisfies the criteria of independence as provided in Section 149(6). (Section 149(7))

22. Obtain the following details from the Director for making entries in Register of Register of directors and key managerial personnel and their shareholding:

    (a) Director Identification Number;

    (b) present name and surname in full;

    (c) any former name or surname in full;

    (d) fathers name, mothers name and spouses name(if married) and surnames in full;

    (e) date of birth;

    (f) residential address (present as well as permanent);

    (g) nationality (including the nationality of origin, if different);

    (h) occupation;

    (i) office of director or key managerial personnel held or relinquished in any other body corporate;

    (m) the details of securities held by him in the company, its holding company, subsidiaries, subsidiaries of the companys holding company and associate companies relating to-

      (i) the number, description and nominal value of securities;

      (ii) the date of acquisition and the price or other consideration paid;

      (iii) date of disposal and price and other consideration received;

      [Section 170(1) and Rule 17 of Companies (Appointment and Qualification of Directors) Rules, 2014]

23. Make necessary entries in the Register of directors and key managerial personnel and their shareholding [Section 170(1) and Rule 17 of Companies (Appointment and Qualification of Directors) Rules, 2014]

24. After appointment, the director concerned shall inform other companies in which he is a director about his appointment in Form MBP-1. [(Section 184(1) ].

25. Follow the procedure prescribed for preparing, signing and compiling of minutes of General Meeting.

26. Inform all concerned persons/ govt. authorities about the appointment of Director like Central Excise Authorities, Customs Authorities, Sales Tax Authorities, Service tax Department, Chief Inspector of Factories, and Regional Provident Fund Commissioner etc.

Notes:

    1) Every independent director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the circumstances which may affect his status as an independent director, give a declaration that he meets the criteria of independence as provided in sub-section (6) of section 149.[Section 149(7)]

    2) Independent Directors of a Company shall hold their separate meeting at least once in a year, without the attendance of non-independent directors and members of management.[Schedule IV]

    3) Furnish in the Boards Report, a statement on declaration given by Independent Directors under Section 149(6) [Section 134(3)(d)) ]

    4) The Independent Director shall not be liable to retire by rotation. [Section 149(13)]

    5) The re-appointment of independent director shall be on the basis of report of performance evaluation. [Schedule IV]

    6) In case of re-appointment of Independent Director, such re-appointment shall be disclosed in Board Report.


Procedure Authors

ACS Divya Jain
ACS Palak Jain
ACS Ankita Jain
ACS Sugandh Jain
ACS Mansi Kapor
ACS Bhawna Sharma


 Schedule Demo

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