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Who is an Independent director?

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Who is an Independent director?

As per Section 149(4) of Companies Act, 2013 every listed company is required to have independent directors amounting at least a third of the total number of directors. The number of independent directors can however be altered by Central Government from time to time. And specifically for the purpose of this Section any fraction shall be rounded off as one. So that means if a company has three directors, then at least one of them should be an independent director.

But the question arises as to who is an independent director. The answer to which is given in sub-Section 6 of Section 149 of the Act. As per the following section an independent director is a director other than managing director, whole time director or nominee director of a company who is

  1. a person of integrity and has experience or some specific expertise in Board's opinion.
  2. not a promoter of a company or its subsidiary, holding or associate company.
  3. not related to promoters of directors of a company, its subsidiary, holding or associate company.
  4. Or was not in a pecuniary, that is, monetary relationship with company or its promoters of directors in the current financial year as well as 2 years immediately preceding the current financial year.
  5. None of his relatives have or had any pecuniary relationship of 2% or more of the company's total income or gross turnover or ₹50 lacs, whichever lower with the company or its promoters or directors in the current financial year as well as 2 years immediately preceding the current financial year.

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Such a person is called an independent director as his decisions will be free of influences. This can also be called as the eligibility criteria for selection of an independent director. The concept of independent director came into existence because Government wanted much more transparency in the state of affairs of the company. A company shall make the appointment as per the provisions stated in Section 150 of the Act.

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