Companies Act 2013
Dawn of new era for
Role of Directors & Related party
(chapters XI & XII)
Disqualification & Vacation of office
• Sec 164 – Disqualifications of Directors
arises at the point of appointment.
• Sec 167 – Vacation of office of Directors
after his appointment.
Section applies to
All companies – private or public.
All types of directors
unless otherwise specified.
Disqualifications - Section 164(1)(a)
he is of unsound mind
and stands so declared
by a competent court.
Section 164(1)(b) and (c)
• he is an un-discharged insolvent.
• he has applied to be adjudged insolvent
and his application is pending.
Suppose a person made an
application to the court on 1.1.2010 and
the court adjudged him as insolvent on
• the un-discharged insolvency period is,
- 1.1.2011 to 31.12.2013 (3 years) – the time
taken to sell all his assets and pay off the
- 1.1.2014 to 31.12.2020 (7 years) – the time
specified by the court restraining him from
doing further business.
Thus, he cannot be a director from 1.1.2010 to
31.12.2020 (11 years)
- 1.1.2010 to 31.12.2010 (1 year) – the time
taken by the court to declare him as insolvent,
- 1.1.2011 to 31.12.2013 (3 years) – the time
taken to sell his assets & pay off the liabilities,
- 1.1.2014 to 31.12.2020 (7 years) – the period
specified by the court restraining him from
doing further business.
Disqualification - Section 164(1)(d)
he has been convicted by a court
for an offence whether involving moral
turpitude or otherwise and
sentenced for imprisonment of not less
than 6 months
a period of 5 years has not elapsed from
the date of expiry of the sentence.
Also, a person who has been convicted
for any offence & sentenced in respect there of
to imprisonment for 7 years or more,
he shall not be eligible to be appointed as a
director in any company.
Disqualification - Section 164(1)(e)
an order disqualifying him has been
passed by a court or tribunal
and the order is in force.
Disqualification - Section 164(1)(f)
he has not paid his calls
In respect of shares held by him
whether alone or jointly and
6 months has elapsed from the last date
fixed for the payment of calls.
Disqualification - Section 164(1)(g)
He has been convicted of the offence
dealing with related party transactions under
at any time during the last preceding 5 years.
Disqualification - Section 164(1)(h)
He has not obtained DIN under section 152 (3)
Disqualification – Sec 164(2)(a)
No person who is or has been a director of
a company which,
(a) has not filed financial statements or
annual returns for any continuous period
of 3 financial years.
Every company has to file with ROC
Financial statements (consisting of Balance
sheet, P&L account, Directors report and
Auditors report) within 30 days of AGM
and annual returns within 60 days of AGM.
Failure should be to file
financial statements or annual returns
for any continuous 3 financial years
Thus, if a company has filed
either financial statements or annual
the director is not disqualified.
Suppose a company has filed any ONE of
the following SIX documents
- for the year 2010-11 F/S
- for the year 2011-12 F/S
- for the year 2012-13 F/S
Are the directors disqualified ?
Intermittent failures within 3 years
• Failure to file them should be for a continuous
period of 3 years.
• Thus, any intermittent failures for 3 years will
not attract the disqualification.
Can the default be subsequently rectified?
Even where the default is subsequently
disqualifications shall remain.
Once defaulted, subsequent rectification
of default is of no consequence.
Disqualification – Sec 164(2)(b)
No person who is or has been a director of a
which has failed to repay
the deposits accepted by it or
pay interest thereon or
to redeem any debentures on the due date or
pay interest due thereon or
pay any dividend declared and
such failure to pay or redeem continues for one
year or more,
shall be eligible to be re-appointed as a
director of that company or
appointed in other company
for a period of 5 years from the date on which
the said company fails to do so.
Disqualification - Sec 164(2)(b)
What is a ‘deposit’?
‗Deposit‘ should not be understood as
•‗Public deposit‘ or as
•‗deposit as defined under section 73‘
but all deposits of money including dealer
deposit, inter-corporate deposit, security deposit
from employees etc.
Failure to pay dividends?
‗failure to pay dividend declared‘ should be
‗failure to pay dividend declared but not paid
within the time specified in section 123‘
Non-payment of dividend, due to
dividend not claimed or
failure to keep in separate bank account sec 124
not paid into Investors education &
protection fund - sec 125
shall not be deemed to be a ‗failure to pay
Default to banks & financial institutions
Failure to pay interest / repayment of
loans/ working capital taken from a Bank/
Public financial institution
does not attract the disqualification.
Failure for one year or more
The disqualification of Sec 164(2)(b) takes
place only when such failure continues for
one year or more,
whereas in case of sec 164(2)(a), it takes
place immediately on default.
Consider the following situation
situation – 1
situation – 2
situation – 3
situation – 4
Only in situation – 1 the director stands
• Sec 164(1)(b) will be attracted only when
the default continues for one year and
he was a director as on the date of default and
continued as director till the effective date of
Can be default be subsequently rectified?
• Even where the default under sec 164(1)(b) is
subsequently cured by the company after one
year (by belated repayment), the directors shall
continue to remain disqualified.
• Once defaulted subsequent rectification of
default is of no consequence.
Section 164(1) (a) & (b)
Suppose a person is a director of ABC Ltd,
the defaulting company,
he shall vacate his office of director not only in
the defaulting company but also the office of
director in all other companies and
shall not be eligible to be reappointed as a
director of that company or appointed in any
for a period of 5 years.
Period of disqualification
• The disqualification is only for 5 years and
after which he can be appointed or
How do you calculate the period of 5 years?
• The disqualification
under sec 164(2)(a), shall be for 5 years
from the date of default, whereas,
under sec 164(2)(b), shall be for 5 years
from the date of default itself (or 4 yrs from
the effective date of default).
Section 164(2) monitoring mechanism
1. Declaration by the proposed director
that he is not so disqualified.
2. Statutory auditor shall report under sec
143, as to whether the directors are so
Who can relax the disqualification
in sec 164?
Neither the company nor the Central Govt.
can relax any of the disqualifications.
Can articles provide for additional
1. A private company can so provide in its
qualifications, experience, age, deposit
3. By implication, a public company cannot so
provide other than those specified in sec 164.
In a private company the disqualifications referred
in section 164(1) (d), (e) and (g) shall not take
for 30 days from the date of conviction or order
where an appeal is preferred within 30 days of
order, until expiry of 7 days from the date on
which such appeal is disposed off; or
where any further appeal is preferred within 7
days, until such further appeal is disposed off.
However, the above proviso will not apply to
Hence, in a public company he shall be
disqualified to be appointed as director from the
date of court order.
Can a minor be a director
1. Section 164 does not address this issue.
2. However by implication, a minor, being
incompetent to contract, cannot file any valid
consent, under section 152(5).
3. Hence he cannot be appointed as a director of
Minimum & maximum directors for a
company – sec 149(1)
Public company – minimum 3 directors
Private company – minimum 2 directors
One person company – minimum 1 director
Maximum directors for all companies – 15
Articles can provide for lower maximum limit.
For appointment of more than 15 directors Special Resolution required.
Every company should comply with this section
within 1 year of applicability
Every listed company should have atleast one
woman director – section to be complied within
Every other company having paid up capital of
Rs. 100 crores or more should also have atleast
one woman director – section to be complied
within 5 years.
What are the consequences if the number of
directors are reduced below the statutory
1. The legislative intention appears that the
minimum directors must be maintained under
2. Hence the directors must be appointed within a
reasonable period of time
How ? - We can visualize three different
(a) the number of directors reduced below the
statutory minimum but quorum can be formed
1. Convene BM or an EGM to appoint directors.
2. Any business transacted after such reduction
3. Where there are 2 directors against the
minimum 3, an allotment of shares is
invalid, though 2 directors can form a quorum.
(b) the number of directors reduced below
the minimum required and no quorum for BM.
Reg 69 of Table F provides, that the
continuing directors may act,
for appointing directors to that fixed for the
for summoning a General Meeting for
appointing directors, but for no other purpose'.
(c ) the company becomes directorless
In such situation, directors are to be appointed
as provided in section 168(3).(promoter and in
his absence the CG will appoint the auditors)
Number of directorships – sec 165
1. A person shall not be a director in more than
20 companies at the same time, including
2. In case of public companies, the maximum
number shall not exceed 10.
3. A private company which is a holding or a
subsidiary of a public company, will be
reckoned as public company for calculating the
limit of 10 directors.
4. The members of a company may, by special
resolution, specify the number less than 20 or
10 (as the case may be) companies in which a
director of the company can act as director.
5. Penalty for contravention of section 165(1)
shall be not less than Rs.5,000/- which may
extend to Rs. 25,000/- for every day of
6. The limits are specified to ensure
(a) directors spend more time for the affairs of
(b) to prevent concentration of economic power
in the hands of few persons.
Transitory provision – sec 165(3)-(5)
1. Consequent to the reduction from 15 to 10 (public
companies), the Director concerned has to, within
1 year of commencement of the Act,
choose the directorship in companies, not more
than the specified limits;
resign as director
in the other remaining
intimate the choice to each of the companies; &
intimate the ROC.
2. Such resignation shall become effective
immediately on dispatch to the company
concerned. (irrespective of sec 168 regarding
resignation of directors).
Only individual to be the Director - Sec. 149(1)
No body corporate, firm or association can
become a director.
Only an individual can be a director because his
office is a office of responsibility, accountability
and position of trust.
Every company should have
at least one director who stayed in India
for not less than 182 days
in the previous calendar year
DIN for Directors
Section 152 (3) & (4)
Every person shall be allotted DIN before
appointment as a director.
Every such proposed person, before his
appointment in the GM, shall furnish his DIN to
the company and a declaration that he is not
disqualified for the appointment under the act.
Consent for directorship
1. The section specifies two types of consents,
applicable for all companies:
First, consent to be filed by the director with the
company on or before his appointment in Form
Second, consent to be filed by the company
with the ROC within 30 days of appointment in
Form no. 11.8
2. In case of independent directors appointed in
GM, the explanatory statement shall include a
statement that he fulfills the conditions
specified in the Act for his appointment
Appointment of a person as director other
than retiring director – section 160
Members shall take the initiative for the
appointment of a director other than retiring
director (similar to special notice).
What is special notice?
• Normally in any GM, it is the board which
proposes the items of business.
• The shareholders, by resolutions, either
approve or disapprove the items of business.
• Special notice is a concept which enables the
members themselves to take the initiative and
propose the items of business.
Procedure in section – 160
1. The proposer, shall give a 14 days notice to
the company along with a deposit of
2. The company shall serve, at least 7 days
before the meeting
individual notice to all the members in writing
or through electronic mode and place notice
on its website.
failing which two newspaper advertisements
can be given.
3. At the general meeting after the regular items
of business, the matters given in the special
notice will be taken up for consideration.
4. If ordinary resolution is passed the director
Other issues in section 160
1. Appointment in AGM/EGM
2. Section 160 notice by member - irrespective
of number of shares held by him
3. Preference shareholder can also give Section
• Member can give section 160 notice
- proposing himself
- proposing any other member
- proposing even an outsider
• Outsider can give section 160 notice only
- proposing himself
Deposit for the candidature
Rs.1,00,000/- at least 14 days before the
• The deposit will be refunded if the person
proposed gets elected as a director or gets
more than 25% of total valid votes cast.
Sec 160 - the only route to enter the
Sec 160 must be complied with for appointment
of director at any GM.
Thus if an additional director, casual vacancy
director or alternate director, after expiry of his
office, is proposed to be appointed as a director
at the GM, section 160 must be complied with.
How about immediate appointment
For immediate appointment of a director, Sec.
160 can be combined with sec 100 to
requisition an EGM to appoint a director.
Other procedural compliances
Filing of Form 11.8 – consent with ROC
Updating ‗Register of Directors‘
Updating ‗Register of Directors shareholding‘
Informing stock exchange – for listed company.
Refund of deposit.
Differences between sec 161(1) and 161(4)
1. Best interest of the co
2. Public & private co
3. Board meeting or
resolution by circulation
4. Power derived from the
5. Holds office upto the
Casual vacancy Director
1. Casual vacancy to arise
2. Only for public companies
3. Board meeting only
4. Power subject to articles
5. Holds office upto the period
original director would have
Alternate director- Sec 161(2)
1. Applicable to public & private companies
2. Board to appoint – not MD/Manager/sec
3. Appointment either at Board meeting or
by resolution by circulation
4. Articles to specifically provide
Who can appoint alternate director
The power to appoint has been given to
and not to the original director who is
Can general meeting appoint alternate
1. The power is vested only with the Board, and
cannot be exercised by the GM.
2. The members by ordinary resolution can only
authorise the Board to appoint, if articles
Issues in appointment of alternate director
1. Alternate director can be appointed only
when the director is absent for 3 months
2. His intention to be absent for 3 months from
India, is a pre-requisite to form an opinion.
It does not refer to actual absence. The
original director may return back before 3
3. The phrase, "during his absence " suggests that the
Original director is going to be outside India.
But the phrase "returns to India " indicates the act of
retuning back to India.
4. Thus alternate directors cannot be appointed in case
of a director who resides outside India (and is
already there) – foreign director/ NRI director
5. An alternate director to an independent
director should also satisfy the criteria for
6. The person to be appointed as the alternate
director shall be the person other than person
holding any alternate directorship for any
other director in the company.
However, a director of the company may act
in dual capacity, i.e. for himself and as an
alternate director for any other director of the
Term of office of alternate director
1. An alternate director shall not hold office
longer than that 'permissible' to the original
2. If the original director ceases due to death/
resignation/ removal or vacation of office, the
alternate director shall immediately cease to
hold his office.
3. The alternate director shall vacate, when the
original director returns to India.
4. The office shall come to an end, irrespective
whether the original director returns to India
for attending a BM or for any other purpose.
• However the Bombay High Court in Janson Engineering
and Trading (Pvt) Limited (18 August 2011) held as under:
• For an alternate director to cease to be a director, actual
attendance at the board meeting of the director appointing him
has not been contemplated under section 313 of the
Companies Act, 1956. Consequently the return to the state
would suffice though the director does not commence
attending board meetings held after his return. The provisions
in the section 313 of the 1956 Act would show not only a
temporary return, but an intention to stay in that state so as to
enable him to transact the business of the company.
• If a director merely comes to the state and leaves India again
he would not be able to transact business. Hence the alternate
director would have continued. The term ―the original director
returns to the state‖, must be read as contemplating a return
which would have some amount of permanence. The director
must return to carry on the business. He must return for a
length of time. The intent of the director must be to return to
India, not for a temporary period eg, on a holiday or on a
vacation. Therefore, when the original director returned to India
to carry on his business in India then the alternate director
would vacate his office under section 313(2) of the 1956 Act.
Status of alternate director
1. Alternate director is not a proxy of original
2. Original director cannot influence him in the
manner of exercise of powers.
3. He is in the same position as any other director
as regards his rights, duties and liabilities.
Appointment of alternate director as MD/WTD
1. If original director was MD, alternate director
will not automatically become MD.
2. Alternate director can be appointed as
MD, even if the original director was not so.
Nominee Director - Section 161(3)
Subject to the articles of a company,
the Board may appoint any person as a director
nominated by any institution
in pursuance of the provisions of any law or of
any agreement or by the Central Government
or the State Government by virtue of its
shareholding in a Government company.
Option to adopt principle of proportional
representation for appointment of directors – sec 163
Notwithstanding anything contained in this Act,
the articles of a company may provide for the
appointment of not less than two-thirds of the total
number of the directors in accordance with the
principle of proportional representation,
whether by the single transferable vote or by a system
of cumulative voting or otherwise and
such appointments may be made once in every three
years and casual vacancies of such directors shall be
filled as provided in section 161(4).
Principle of proportional representation
Sec - 163
1. Directors are appointed by shareholders in
proportion to the shares held by them.
2. Purpose of the section – to give effect to
group interests, minority interests etc.,
3. Section 163 overrides inconsistent sections
like 152, 160, 162 etc.,
4. Applicable to all companies – Public & Private.
5. Articles to specifically provide.
6. Not less than 2/3rd of the total directors must
be appointed under the principle –
remaining directors shall be appointed as per
7. These directors can hold office for 3 years.
8. They cannot be removed from office under
section 169 – hence permanent directors for 3
9. After 3 years they shall be again appointed by
the members based on shareholding pattern and
the process carries on.
10. Any casual vacancy in the office shall be filledup under section 161(4) by the board.
Vacation of office of Director - Sec 167
The implications of vacation of office are:
1. The vacation shall be automatic.
2. On happening of the events - forthwith cease
to be a director.
3. No need for opportunity to show cause.
4. The Board need not pass a resolution.
5. The Board shall have no power to waive the
6. Where a director disputes the vacation, he
shall first vacate the office, and then resort to
the Court for a direction that the section was
not applicable and that he be reinstated.
The office of a director shall become vacant
automatically in the following circumstances
1. if he incurs any of the disqualifications
specified in section 164 (10 circumstances).
Thus, it implies the disqualifications for a
director would arise not only at the point of
appointment but also during his tenure as
2. he absents himself from all the meetings of
the board held during a period of 12 months
with or without seeking leave of absence from
Absent from all board meetings held in 12
With or without seeking leave of absence from the
absents himself – scope for legal & medical
The onus of proving rests on the company. It
has to prove the following
1. The notice of the meeting was duly sent.
2. The director has received the notice.
3. The meeting was duly held.
4. The director did not attend the meeting.
3. he acts in contravention of section 184 relating
to entering into contracts or arrangements in
which he is directly or indirectly interested;
4. he fails to disclose his interest in any contract
in which he is interested, in contravention of
5. he becomes disqualified by an order of a court
or the Tribunal;
6. he is convicted by a court of any offence,
whether involving moral turpitude or otherwise
and sentenced in respect thereof to
imprisonment for not less than 6 months:
Provided that the office shall be vacated by
the director even if he has filed an appeal
against the order of such court;
7. he is removed in pursuance of the provisions
of this Act;
8. he, having been appointed a director by virtue
of his holding any office or other employment
in the holding, subsidiary or associate
company, ceases to hold such office or other
employment in that company.
Penalties under sec 167(2)
• If a person, functions as a director even when
he knows that the office of director held by him
has become vacant, he shall be punishable with
imprisonment for a term which may extend to
one year or with fine which shall not be less
than Rs. 1,00,000/- but which may extend to
Rs. 5,00,000/-, or with both.
Promoters to act as Directors
• Where all the directors of a company vacate
their offices under any of the disqualifications
specified, the promoter or, in his absence, the
CG shall appoint the required number of
directors who shall hold office till the directors
are appointed by the company in the general
Vacation of office of director - Pvt co
• A private company may provide additional
grounds in its articles.
• By implication, a public company cannot
provide for additional grounds.
• A private company cannot circumvent section
169, in the guise of including additional grounds
in its articles for the vacation of office by
directors under section 167(4).
• Whenever any such additional ground included
virtually results in the removal of a director, the
power in this behalf can only be exercised by
the company in general meeting under section
Resignation of directors – Sec 168
1. A director may resign from his office
by giving a notice in writing to the company and
the Board shall take note of the same and
the company shall intimate the ROC within 30
days in Form No. 11.8 and
post the information on its website, if any, and
shall also specify such resignation in the
forthcoming Director‘s Report.
2. The resigning director shall forward a copy of
his resignation letter with detailed reasons to
ROC in Form No. 11.7 within 30 days of his
3. The resignation of a director shall take effect
from the date on which the notice is received
by the company or the date, if any, specified
by the director in the notice, whichever is later.
4. The director who has resigned shall be liable
even after his resignation for the offences
which occurred during his tenure.
Promoters to act as Directors
• Where all the directors resign from their
offices, the promoter or, in his absence, the
Central Government shall appoint the required
number of directors who shall hold office till the
directors are appointed by the company in the
Resignation of MD/WTD
1. There are no provisions in the Act regarding
resignation of MD/WTD
2. It appears that, in case of resignation of MD/
WTD, apart from compliance of section 168,
the resignation has to be accepted by the
Board and he should be relieved from his
Right to resign
• Where there were two directors, one died and
the other wanted
to resign, a letter of
resignation to the company under intimation to
ROC was enough to make the resignation
• It was not necessary that the surviving
director should first co-opt a director and
then hand over the resignation to him.
Small shareholder’s Director – sec 151
1. A listed company may
suo motu or
upon the notice of not less than 500 or 1/10th of the
total number of small shareholders,
whichever is lower,
elect one small shareholders‘ director from amongst
the small shareholders.
2. Such small shareholders intending to propose a
person as a candidate
shall leave a notice of their intention with the company
at least 14 days before the meeting under their
specifying the name, address, shares held and folio
number of the proposed person and of the small
shareholders who are proposing such person.
3. Such notice shall be accompanied by a statement
stating his DIN;
that he is not disqualified to become a director;
his consent to act as a director of the company.
4. Such director shall be considered as an independent
director subject to his giving a declaration of his
independence as specified.
5. The appointment of small shareholders‘ director shall
be subject to section 152 except thatThe director shall not be liable to retire by rotation;
The small shareholders‘ director‘s tenure shall not
exceed a period of three consecutive years; and
on the expiry of the tenure, the director shall not be
eligible for re-appointment.
6. A person shall not be appointed as small
shareholders‘ director, if the person is disqualified for
appointment in terms of section 164.
7. A person appointed as small shareholders‘ director
shall vacate the office if the director ceases to be a small shareholder, on
and from the date of cessation;
the director incurs any of the disqualifications
specified in section 164;
the office of the director becomes vacant under
the director ceases to meet the criteria of
independence as provided in section 149(6)
8. No person shall hold the office of small shareholders‘
director in more than two companies at the same
9. A small shareholder means a shareholder holding
shares of nominal value of not more than Rs. 20,000.
Removal of small shareholders director
• He can be removed by ordinary resolution passed in
the general meeting after compliance of the
procedural requirements of section 169.
• There is nothing in the act or in the rules which
requires, obtaining the consent of small shareholders,
• A Small Shareholders‘ Director can be removed only
with the consent of all the shareholders of the
Duties of Director – section 166
1. A director shall act in accordance with the
articles of the company.
2. A director of a company shall
act in good faith to promote the company‘s objects
for the benefit of its members as a whole, and
in the best interests of the company, its
employees, the shareholders, the community and
for the protection of environment.
3. A director shall exercise his duties with due and
reasonable care, skill and diligence and shall
exercise independent judgment.
4. A director shall not involve in a situation in which he
may have a direct or indirect interest that conflicts, or
possibly may conflict, with the interest of the
5. A director shall not achieve or attempt to achieve
any undue gain or advantage either to himself or to
his relatives, partners, or associates and if such
director is found guilty of making any undue gain, he
shall be liable to pay an amount equal to that gain to
6. A director of a company shall not assign his office
and any assignment so made shall be void.
7. If a director of the company contravenes the
provisions of this section such director shall be
punishable with fine which shall not be less than Rs.
1,00,000/- but which may extend to Rs. 5,00,000/-
Penalties – sec 172
If a company contravenes any of the provisions
of this Chapter XI and for which no specific
punishment is provided therein, the company
and every officer in default shall be punishable
with fine which shall not be less than Rs.
50,000/- but which may extend to Rs. 5,00,000.
Director Identification Number (DIN)
1. Every individual, who is to be appointed as director
of a company, shall make an application
electronically to CG for allotment of DIN (Form No.
2. The CG shall allot a DIN, within 1 month of receipt of
3. No individual, who has already been allotted a DIN,
shall apply for another DIN.
4. Every director shall intimate his DIN to the company
or all the companies wherein he is a director within 1
month of receipt of DIN.
5. Every company shall furnish DIN of all its directors to
ROC within 15 days of the receipt of the same from
6. Every person or company shall mention the DIN in
returns, information or particulars filed under the Act.
7. Penalty for violation – Imprisonment upto 6 months
or fine Rs. 50,000
Independent Director – sec 149(6)
1. An independent director means
a director other than a managing director or a wholetime director or a nominee director,
Should be a person of integrity and possesses
relevant expertise and experience;
Such person should not have been
a promoter of the company or its holding, subsidiary or
associate company or
related to promoters or directors in the company, its
holding, subsidiary or associate company;
not have any pecuniary relationship with the company,
its holding, subsidiary or associate company, or their
promoters, or directors, during the two immediately
preceding financial years or during the current
none of the relatives of such person must have
pecuniary relationship or transaction with the
company, its holding, subsidiary or associate
company, or their promoters, or directors, amounting
to 2% or more of its gross turnover or total income or
Rs 50 lakhs or such higher amount as may be
prescribed, whichever is lower, during the two
immediately preceding financial years or during the
current financial year;
who, neither himself nor any of his relatives—
holds or has held the position of a key managerial
personnel or is or has been employee of the
company or its holding, subsidiary or associate
company in any of the 3 financial years immediately
preceding the financial year in which he is proposed
to be appointed;
is or has been an employee or proprietor or a partner,
in any of the 3 financial years immediately preceding
the financial year in which he is proposed to be
(A) a firm of auditors or company secretaries in
practice or cost auditors of the company or its
holding, subsidiary or associate company; or
(B) any legal or a consulting firm that has or had any
transaction with the company, its holding,
subsidiary or associate company amounting to
10% or more of the gross turnover of such firm;
holds, together with his relatives, 2% or more of the
total voting power of the company; or
is a Chief Executive or director, by whatever name
called, of any non profit organisation that receives
25% or more of its receipts from the company, any of
its promoters, directors or its holding, subsidiary or
associate company or that holds 2% or more of the
total voting power of the company; or
who possess appropriate balance of skills, experience
and knowledge in one or more fields of
finance, law, management, sales, marketing, administr
ation, research, corporate governance, technical
operations or other disciplines related to the
2. Every listed public company; or
Public Companies having paid up share capital of Rs.
100 crores or more; or
Public Companies having turnover of Rs. 300 crores
or more; or
aggregate, outstanding loans or borrowings or
debentures or deposits, exceeding Rs. 200 crores
shall have at least one-third of the total number of
directors as independent directors. Any fraction
contained in such one-third number shall be rounded off
3. Every company existing on or before the date of
commencement of this Act shall, within one year from
such commencement or from the date of notification
of the rules in this regard as may be
applicable, comply with the requirements of the
provisions of sub-section (3).
4. Every independent director shall
at his first Board meeting
and thereafter at the first Board meeting in every
financial year or
whenever there is any change in the
circumstances which may affect his status as an
give a declaration that he meets the criteria of
independence as provided in sub-section (6).
5. The company and independent directors shall abide
by certain duties specified in Schedule IV.
6. An independent director shall not be entitled to any
stock option and may receive remuneration by way of
sitting fees, reimbursement of expenses for
participation in the Board and other meetings and
profit related commission as may be approved by the
7. 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.
8. No independent director shall hold office for more
than two consecutive terms, but he shall be eligible
for appointment after the expiration of three years of
ceasing to become an independent director. Also, he
shall not, during the said period of three years, be
appointed in or be associated with the company in
any other capacity, either directly or indirectly.
9. An independent director, a non-executive director not
being promoter or key managerial personnel,
shall be held liable, only for such acts of omission or
commission by a company
which had occurred with his knowledge, attributable
through Board processes, and with his consent or
connivance or where he had not acted diligently.
10.The provisions of retirement of directors by
rotation, shall not be applicable to appointment of