Presentation is made for understanding what is independent director? what are its roles? Also by means of this you can understand what are the various provisions applicable to independent director.

1. Independent Director and its
Role, Responsibility & Duties
Research Data Compiler
Kshitij Samant Praniti Porwal
Presentation Finalised
Drishti Sidhwa Vishal Dhona

2. Emergence
 SOS Act
 Cadbury Committee
 Narayana Murthy Committee
 Kumar Mangalam Birla Committee
on Corporate Governance

3. Why it is needed ?
 Two major changes over the past scenario:
 variety of stakes in a modern corporation, apart from the stake of
the legal equity holders; and
 thanks to capital markets, major diversification of the equity capital
leading to ever larger distance between the owners of capital and
the managers.
 The decline of banking and the rise of the institutional investor
 Increasing power and size of enterprises
 Working of the economic system
 enterprises spreading offices and employees in
dozens of countries
 Business activities spreading across the continents
 Shareholders scattered across the world
 Investments by institutional investors

4. Definition of Independent director
As per section (47) of Act “independent director” means an
independent director referred to in section 149.
As per sub-section 6 of Section 149 of Act, Independent Director means
a director other than a managing director or whole-time director or a
nominee director,
 is a person of integrity
 Not a promoter of the company
 Not related to promoters
 Had no pecuniary relationship with the company
 None of its relatives has pecuniary relationship or transaction with the
company;
 Not have held position of KMP or an employee

5. Cont..
 Not been an employee, proprietor or partner
 Firm of auditor or PCS or cost auditor
 Legal or consulting firm
 Does not holds 2% or more of total voting power
 Is not chief executive or director of Non Profit Organization that
receives 25% or more of its receipts from the company
 And such other qualifications as may be prescribed.

6. Role of Independent Directors
In the schedule IV of the companies act, 2013 the roles and duties have
been laid down:-
 Impartial judgment
 Strategic advisor to the company
 Watchdog for interest of stakeholders
 Moderate in the interest of the company in conflict situations
 Transparency
 Innovative or creative suggestions for better future prospects of the
company
 Overview that the company is following good governance policy

7. Responsibilities
 Uphold ethical standards of integrity and probity
 Act objectively and constructively
 Act in a bona fide manner
 Devoted and take balance decisions
 Do not abuse the position
 Refrain from any action that shall lead to loss of his independence
 Assist the company in implementing the best corporate governance
practices

8. Declaration by Independent Director
Section 149(7):
Every independent director shall give a declaration that he meets the
criteria of independence as provided above in the definition Section
149(6), at the first board meeting in which he participates as a director
and thereafter at the first board meeting in every financial year or
whenever there is any change which may affect his status as an
independent director

9. Duties
 To undertake appropriate induction and regularly update and refresh
their knowledge, skills and familiarity
 Strive to attend all meetings of the board of directors and board
committees of which he is a member
 Participate constructively in the committee of board of directors in
which they chair person or members
 Keep themselves best informed of the workings of the company and the
external environment in which it operates
 Acting within his authority, assist in protecting the legitimate interests
of the company, shareholders and its employees

10. Contd…
 Not disclose confidential information, including commercial secrets,
technologies and unpublished price sensitive information, unless such
disclosures is expressly approved by the board or required by law.
 Report concerns about unethical behavior, actual or suspected fraud
 Seek appropriate clarification or amplification of information
 Attend general meetings

12. Term of Office
 5 (original term) + 5 years (additional term subject to a special
resolution).
 After expiry of term individual ineligible for reappointment for 3 years.
 Tenure to be non-rotational
Original Term AdditionalTerm
subject to a
special resolution

13. Remuneration
An independent director shall:
 not be entitled to participate in any stock option,
 receive remuneration by way of fee ,
 be entitled to reimbursement of expenses for participation in the Board
and other meetings,
 and entitled to profit related commission as may be approved by the
members.

14. Provision with respect to Board Meetings
 A meeting of the Board may be called at shorter notice to transact
urgent business subject to:
at least one independent director, if any, shall be present at the
meeting.

15. Penalty for non-compliance of independent
director provisions
 Double penalty for non-compliance – under Companies Act and
Securities and Contract Regulations Act (SCRA)
 Penalty under Companies Act, 2013; INR 50,000 to INR 5,00,000.
 Penalty under SCRA; Imprisonment up to 10 years or fine up to Rupees
25 Crore.

16. How the professionals can be recruited as
Independent Director?
 At the website of Institute of Company Secretaries of India
(www.icsi.edu) one can find the data base of members with extensive
exposure and who are willing to act as Independent Director.

17. Examples of liability of independent
directors
 In case of Worldcom and Enron, directors settled liabilities:
 $ 18 million by 10 outside directors in Worldcom
 $ 13 million by 10 directors in Enron
 In Walt Disney case, the court did not impose liability on directors:
 Ruling based on Delaware law
 Duty of care, fiduciary duty and gross negligence discussed at length
 India:
 The conclusion is inevitable that the liability arises on account of
conduct , act or omission on the part of a person and not merely on
account of holding an office or a position in a company.

18. Before the presentation

19. After the Presentation!!
Last but not the least!!