The document discusses the role and responsibilities of independent directors according to the Companies Act 2013 in India. It defines independent directors as non-executive directors who are not related to the company's promoters or management. Independent directors can be appointed for up to two terms of 5 years each and are responsible for bringing objective oversight to board decisions. Their key duties include helping evaluate strategy and performance, overseeing risk management, and ensuring integrity of financial reporting. The document outlines qualifications for independent directors and limits their liability to matters they were aware of or approved.

1. ROLE OF
INDEPENDENT
DIRECTORS
With the New companies Act, 2013 the role of
Independent Directors have been increased many
fold. They are required to deliberate on issues
of strategy, performance, risk management,
resources, key appointments and standards
of conduct of the company; bring an objective
view in the evaluation of the performance of
board and management; scrutinize the
performance of management and monitor the
reporting of performance; and much more..
therefore it is essential that they are updated
about the affairs of the company.
See what Regulatory Team from Taxpert
Professionals has to say on the Role and
Functions of Independent Directors…

2. Meaning of Independent Directors
As per Section 2(47), “Independent Director” means an
independent director referred to in sub-section (5) of section 149.
Section 149 (6) contains that – 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,—
(a) Who, in the opinion of the Board, is a person of integrity
and possesses relevant expertise and experience;
(b) (i) Who is or was not a promoter of the Company or its
Holding, Subsidiary or Associate Company;
(ii) Who is not related to promoters or directors in the
company, its Holding, Subsidiary or Associate Company;
(c) Who has or had no 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 financial year;
(d) None of whose relatives has or had pecuniary relationship
or transaction with the Company, its Holding, Subsidiary or
Associate Company, or their promoters, or directors,
amounting to two per cent or more of its gross turnover or total
income or fifty lakh rupees or such higher amount as may be
prescribed, whichever is lower, during the two immediately
preceding financial years or during the current financial year;
(e) Who, neither himself nor any of his relatives—
(i) 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 three
financial years immediately preceding the financial year in which
he is proposed to be appointed;
(ii) Is or has been an employee or proprietor or a partner, in
any of the three financial years immediately preceding the
financial year in which he is proposed to be appointed, of—
(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 ten per cent. or more of the
gross turnover of such firm;
(iii) Holds together with his relatives two per cent. or more
of the total voting power of the Company; or
(iv) Is a Chief Executive or director, by whatever name
called, of any nonprofit organization that receives twenty-five
per cent or more of its receipts from the Company, any of its
promoters, directors or its holding, subsidiary or associate
Company or that holds two per cent. or more of the total voting
power of the Company; or
(f) Who possesses such other qualifications as prescribed below:
An independent director shall possess appropriate balance of
skills, experience and knowledge in one or more fields of
finance, law, management, sales, marketing, administration,
research, corporate governance, technical operations or other
disciplines related to the Company’s business.

3. Term of Appointment
An Independent Director can, subject of provisions of section 152,
hold office for a term of 5 consecutive years. He can be appointed
as such for a further term, not exceeding 5 years, if the members
pass a special resolution and disclosure of such appointment is
made in the Board Report.
After the expiry of 10 years period he cannot be reappointed as an
Independent Director. He can, however, be appointed as such
director after expiry of 3 years provided he was not directly or
indirectly associated with the company in any other capacity. It may
be noted that the period during which the Independent Director
has held office as such director before the commencement of the
new Act shall not be counted for computing the period of 10 years,
stated above.
An Independent Director shall not be liable to retire by rotation as
provided in section 152 (6) and (7).
The appointment of Independent Director shall be approved by
the company in General Meeting as provided in section 152(2).
The explanatory statement annexed to the notice of General
Meeting shall indicate the justification for choosing the Director
for such appointment. This notice shall also include a statement
that, in the opinion of the Board of Directors, such person fulfils
the conditions in the Act for such appointment.
It may be noted that under the revised Clause 49 of the
Listing Agreement, it is provided that if a person was an
Independent Director of a listed company for 5 years or more
before 1.10.2014, he can hold office as Independent Director
of that company only for 5 years. To this extent this provision
is contrary to the provision of section 152 as stated above.
Under Section 165 a person can be a director (including
alternate directorship) of not more than 20 companies of which
10 companies can be public companies. Revised clause 49 of
the Listing Agreement provides that no person shall be
Independent Director of more than 7 listed companies. If
he is a Whole Time Director of a listed company, he
cannot be Independent Director of more than 3 other
listed companies.
Section 149 (12) provides that (i) an Independent Director and
(ii) a non executive Director (other than a promoter or key
management personnel) shall be held liable only in respect of
such acts of omission or commission by a company which had

4. occurred with his knowledge, attributable by the Board process.
Further, he will also be liable for such acts which have occurred
with his consent or connivance or where he had not acted
diligently.
Role and Functions of Independent
Directors
The Independent Directors shall:
(i) Help in bringing an independent judgment to bear on the
Board’s deliberations especially on issues of strategy,
performance, risk management, resources, key
appointments and standards of conduct;
(ii) Bring an objective view in the evaluation of the performance
of board and management;
(iii)Scrutinize the performance of management in meeting
agreed goals and objectives and monitor the reporting of
performance;
(iv)Satisfy themselves on the integrity of financial information
and that financial controls and the systems of risk management
are robust and defensible;
(v) Safeguard the interest of all stakeholders, particularly the
minority shareholders;
(vi)Balance the conflicting interest of the stakeholders;
(vii) Determine appropriate levels of remuneration of executive
directors, key managerial personnel and senior management and
have a prime role in appointing and where necessary
recommend removal of executive directors, key managerial
personnel and senior management; and
(viii) Moderate and arbitrate in the interest of the company as a
whole, in situations of conflict between management and
shareholder’s interest.
Duties of Independent Directors
The Independent Directors shall:
(i) Undertake appropriate induction and regularly update and
refresh their skills, knowledge and familiarity with the company;
(ii) Seek appropriate clarification or amplification of
information and, where necessary, take and follow appropriate
professional advice and opinion of outside experts at the
expense of the company;
(iii) Strive to attend all meetings of the Board of Directors and
the Board committees of which he is a member;
(iv)Participate constructively and actively in the committees of
the Board in which they are chairpersons or members.
(v) Strive to attend the general meetings of the company;
(vi) Where they have concerns about the running of the
company or a proposed action, ensure that these are addressed
by the Board and, to the extent that they are not resolved, insist
that their concerns are recorded in the minutes of the Board
meeting;
(vii) Keep themselves well informed about the company and the
external environment in which it operates;

5. (viii) Not to unfairly obstruct the functioning of an otherwise
proper Board or committee of the Board;
(ix) Pay sufficient attention and ensure that adequate
deliberations are held before approving related party
transactions and assure themselves that the same are in the
interest of the company;
(x) Ascertain and ensure that the company has an adequate and
functional vigil mechanism and to ensure that the interests of a
person who uses such mechanism are not prejudicially affected
on account of such use;
(xi) Report concerns about unethical behavior, actual or
suspected fraud or violation of the company’s code of conduct
or ethics policy;
(xii) Acting within his authority, assist in protecting the
legitimate interests of the company, shareholders and its
employees; and
(xiii) Not disclose confidential information, including
commercial secrets, technologies, advertising and sales
promotion plans, unpublished price sensitive information,
unless such disclosure is expressly approved by the Board or
required by law.
LIABILITY
The Companies Act, 2013, has sought to balance the wide
nature of the obligations, functions and duties imposed on an
Independent Directors. The Companies Act, 2013, restricts
and limits the liability of Independent Director’s to the
matters which are directly relatable to them. Section 149
(12) limits the liability of an Independent Director “only in
respect of 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”.
Some Procedural Provisions:
It may be noted that some procedural provisions relating to
Independent Directors are as under:-
(i) Section 152(3) provides that all directors (including
Independent Directors) of a Company (including a Private
Company) shall obtain Director Identification Number (DIN).
(ii) Section 167(1)(b) provides that a Director (including an
Independent Director) of a Company (including a Private
Company) shall vacate his office if he does not attend all the
meetings of the Board held during a period of 12 months, with
or without seeking leave of absence of the Board. It may be
noted that under section 173(2) participation of directors in a
Board Meeting through Video Conferencing or other Audio
Visual means is permitted.
(iii) U/s 173(3) at least 7 days notice is required for Board
Meeting. If shorter notice is given, at least one Independent
director should be present at the meeting. If no Independent
Director is present at such meeting, the decisions taken by the
Board should be circulated to all Directors. These decisions

6. shall be final only if they are ratified by at least one of the
Independent Directors.
(iv) Where Audit Committee is required to be appointed by a
listed or other specified Companies under section 177, it should
have at least 3 Directors. Majority of Directors in this
committee should be Independent Directors.
(v) Section 178 is a New Section which provides for
appointment of Nomination and Remuneration Committee of
the Board. This Committee should consist of 3 or more non-
executive directors. Out of this at least 50% should be
Independent Directors. This Section is applicable to a listed
company and to other specified Companies. It may be noted
that for the purposes of clause (iv) Above and this clause,
“Specified Company” means a Public Company having
(a) Paid up Capital of Rs.10 cr. or more, or
(b) Turnover of Rs.100 cr. or more, or
(c) Which has aggregate outstanding loans, borrowings,
debentures or deposits exceeding Rs. 50 cr.
(vi) A listed Company or other specified company as stated in
Section 135 has to appoint a Corporate Social Responsibility
(CSR) Committee of Board. This committee should consist of
3 or more Directors, out of which at least one Director shall be
an Independent Director.
(vii) The Board Report to Members should give a statement of
declaration given by Independent Directors u/s 149(6).
(viii) Chapter XI (Sections 149 to 172) contains various provisions
relating to duties and responsibilities of Directors (including
Independent Directors). In this Chapter some of the sections
provide that penalty of varying amount can be levied on the
Company for non-compliance with the provisions of the Section.
There are also provisions for prosecution of defaulting officers and
levy of penalty on them.
Therefore, the major responsibility is cast on the independent
directors of the company and the Key Officers about compliance
with the provisions of these sections.

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