A COMPARATIVE STUDY OF PROVISIONS MADE UNDER CLAUSE 49 AND THE COMPANIES ACT 2013 FOR INDEPENDENT DIRECTORS

PARTICULARS INDIAN REGULATORY FRAMEWORK
CLAUSE 49 COMPANIES ACT, 2013

 COMPANY LAW.

 

A COMPARATIVE STUDY OF PROVISIONS MADE UNDER CLAUSE 49 AND THE COMPANIES ACT 2013 FOR INDEPENDENT DIRECTORS.[1]

 

 

Prescription as to Board Independence

 

50% of the Board has to be independent in cases where the Chairman is a promoter, otherwise at least 1/3rd of the Board should be independent.

 

Every Listed Company and prescribed class of companies to have at least 1/3rd of the total number of directors as Independent Directors. (Section 149)

 

Separation of Role of Chairman and CEO

 

The same individual is allowed to hold the office of both the Chairman and the CEO.

 

Office of the Chairman and CEO cannot be held by same individual subject to conditions (section 203)

 

Lead Independent Director

 

Not required to be appointed

 

Not required to be appointed.

 

 

Nominee Director

 

Nominee Directors shall not be considered as Independent Directors.

 

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. (Section 149(6))

 

Declaration as to Independence

 

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Section 149(7) mandates declaration from Independent Directors stating that they are meeting the criteria for independence.

 

 

Qualification of Independent Directors

 

Not specified.

 

Companies (Appointment and qualification of Directors) Rules, 2014 specifies certain criteria as to qualification.

 

Stock Options

 

Stock Options are prohibited to Independent Directors.

 

Independent Directors are not entitled to any Stock Option. (Section 197(7))

 

Separate Meeting of Independent Directors

 

The Independent Directors shall hold at least one meeting in a year, without the attendance of non-independent directors and members of management.

 

Independent Directors of the Company shall hold at least one meeting in a year, without the attendance of Non-Independent Directors and members of management. (Section 149 read with Schedule IV)

 

Audit Committee

 

The Audit Committee shall comprise of minimum 3 directors as its members. Two-thirds of the members of the Audit Committee shall be Independent Directors.

 

Section 177.

·         The Board Directors of every listed company and such other class or classes of companies, as may be prescribed, shall constitute an Audit Committee.

The Audit Committee shall consist of a minimum of three Directors with Independent Directors forming a majority.

 

Nomination Committee

 

The Company shall set up a nomination and remuneration committee which shall comprise of at least 3 Directors, all of whom shall be Non-Executive Directors and at least half of them shall be independent. The Chairman of the Committee shall be an Independent Director.

 

The Nomination and Remuneration Committee is applicable to the following classes of companies:

·         Listed Companies.

·         Every Public Company.

·         Company having a paid up capital of Rs.10 crores of more

·         Company having a turnover of more that 100 crores

·         Company having an outstanding loans or borrowings or debentures or deposits exceeding Rs.50 crores in aggregate.

·         The paid up share capital or turnover or outstanding loans or borrowings or debentures or deposits, as the case may be as existing on the date of last audited Financial Statements shall be taken into consideration for the purpose of this rule.

 

CSR Committee

 

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Every company having a net worth of Rs.500 crores or more or a net profit of Rs.5 crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of 3 or more Directors, out of which at least 1 Director shall be an Independent Director.

 

Stakeholders Grievance Cell

 

A Committee under the Chairmanship of a Non-Executive Director and such other members as may be decided by the Board of the Company shall be formed to specifically look into the redressal of grievances of shareholders, debenture holders and other security holders. The Committee shall be designated as ‘Stakeholders’ Relationship Committee and shall consider and resolve the grievances of the security holders of the company including complaints related to transfer of shares, non-receipt of balance sheet, non-received of declared dividends.

 

The Board of Directors of a company which consists of more than 1000 shareholders, debenture-holders, deposit-holders and any other security holders at any time during financial year shall constitute a Stakeholders Relationship Committee consisting of a Chairperson who shall be a Non-Executive Director and such other members as may be decided by the Board. The SRC shall consider and resolve the grievances of security holders of the company. (Section 178 (5))

 

Performance Evaluation of Independent Directors

 

Clause 49(II)(B)(5):

·         The nomination Committee shall lay down the evaluation criteria for performance evaluation of Independent Directors.

·         The company shall disclose the criteria for performance evaluation, as laid down by the Nomination Committee, in its Annual Report.

·         The performance evaluation of Independent Directors shall be done by the entire Board of Directors (excluding the Director being evaluated).

·         Based on the basis of the report of performance evaluation, it shall be determined whether to extend or continue the term of appointment of the Independent Director.

 

Section 178 (2) read with Schedule IV:

The nomination and remuneration committee shall identify the persons who are qualified to become Directors and who may be appointed in Senior Management in accordance with the criteria laid down, and it shall then recommend their names to the Board for appointment and removal by carrying out the evaluation of every Director on the Board. The performance evaluation of Independent Directors shall be done by the entire Board of Directors (excluding the Director being evaluated).

on the basis of the report of performance evaluation, it shall be determined whether to extend or continue the term of appointment of the Independent Director.

 

 

Tenure of Independent Directors

 

To restrict the total tenure of an Independent Director to 2 terms of 5 years. However, if a person who has already served as an Independent Director for 5 years or more in a listed company as on the date on which the amendment to Listing Agreement becomes effective, he shall be eligible for appointment for one more term of 5 years only.

 

An Independent Director shall hold office for a term of 5 consecutive years, but shall be eligible for re-appointment on passing of a special resolution by the company and disclosure of such appointment in the Board’s report. No Independent Director shall hold office for than 2 consecutive terms, but such Independent Director shall be eligible for appointment after the expiration of 3 years of ceasing to become an Independent Director.

 

Training of Independent Directors

 

The company shall provide suitable training to Independent Directors to familiarize them with the company, their roles, rights, responsibilities in the company, nature of industry etc. The details of the same shall form a part of the Annual Report of the company.

 

No provision as to training.

 

Liability of Directors

 

An Independent Director shall be held liable only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable to Board process and with his consent or connivance or where he had not acted diligently with respect to the provisions in the listing agreement.

 

An Independent Director a Non-Executive Director not being a promoter or KMP, shall be held liable, only in respect of such acts or omission or commission by a company which had occurred with his knowledge, attributable through the Board processes and with his consent or connivance or where he had not acted diligently. (Section 149 (12))

Written by-Shajeeda Tajdeen.

 

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