PROVISIONS REGARDING INDEPENDENT DIRECTOR Prepared and Presented by: Dipendra Prasad Poudel Article trainee (Internal Audit)

APPOINTMENT OF INDEPENDENT DIRECTOR For the purpose of this sub-section any fraction contained in such one-third number shall be rounded off as one Listed Company Every Listed Company; one third of total number of directors shall be At least one third of total number of directors shall be independent Director.

ADHERENCE

TWO MINIMUM NUMBER OF IDS Public companies having paid up share capital of Rs 10 crore or more; or Public companies having turnover of one hundred crore rupees or more; or Public companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees If the company covered under this rule, is required to appoint higher number of independent directors due to composition of its audit committee, such higher number of independent directors shall be applicable to it

WHO IS INDEPENDENT DIRECTOR ? Director other than managing director or a whole time director or a nominee director Who, in the opinion of board, is a person of integrity and possess relevant expertise and experience

CAN EVERYONE BE INDEPENDENT DIRECTOR ????  NO, person should have qualifications and should not have any disqualification to be independent director.  In the opinion of the board, he/she is a person of integrity and possess relevant expertise and experience;  Who is or was not a promoter of the company or its holding, subsidiary or associate company;  Who is not related to promoters or the directors of the company, its holding, associate or subsidiary company  Who has or had not pecuniary relationship with the company, its holding, subsidiary or associate company, or the promoters, or directors, during the two immediately financial year or during the current financial year.

 None of whose relative has or had no pecuniary relationship or transaction with the company, its holding company, its subsidiary or associate company, or their promoters, or directors, amounting to  Two percent or more of its gross turnover or total income or fifty lakhs rupees or such higher amount as may be prescribed, whichever is lower;  During two immediately preceding financial year or during the current financial year

 Who neither himself nor any of his relatives  Hold or has held position of Key Managerial person in any of three preceding financial year in which he is proposed to be appointed.  Is or has been employee or proprietor or a partner, in any of the three financial year immediately preceding the financial year in which he is proposed to be appointed of  A firm of Auditors or company secretaries in practice or cost auditors of the company.  Any legal or consulting firm that has or had any transaction with the company. Note: For above mentioned provision company includes its holding, subsidiary as well as associated company

 Holds together with his relatives two percent 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 organization that receives twenty five percent or more of its receipt from the company, any of its holding, subsidiary or associate company or that holds two percent or more of the total voting power of the company; or  Who posses such other qualification as may be prescribed

REMUNERATION TO INDEPENDENT DIRECTOR  Re-imbursement of expenses for participation in the board and other meeting  Profits related commission as may be approved by the member  Maximum sitting fees shall not exceed one lakhs  Sitting fees paid to Independent director shall not be less than fees paid to other directors Director shall not be entitled to any option plan.

TENURE OF INDEPENDENT DIRECTOR  For the period of five years  Eligible for re-appointment on passing of special resolution  No Independent director shall be eligible for appointment for more than two consecutive period. but shall be eligible for re-appointment after expiration of three years of ceasing to become Independent director Provided that, during the period of three year independent director shall not be appointed or associated with the company in any other capacity either directly or indirectly Retirement of Directors By rotation Shall not be applicable

LIABILITY OF INDEPENDENT DIRECTOR Shall be held Liable on acts of omission or commission of company, 1)Which had occurred with his knowledge, attributable through board processes. 2)With his consent or connivance or where he had not acted diligently.

MANNER OF SELECTION OF INDEPENDENT DIRECTOR Selection of Independent Director May be Selected From Data Bank Data bank consist of Details Details of Name, address, qualificatio n etc Responsibility of due diligence is of the company

MANNER OF SELECTION OF INDEPENDENT DIRECTOR Data Bank Can be maintained by Body, Institute or Associatio ns Notified by central Governme nt Contains the details of interested candidate Host the eligible persons detail in their website

MANNER OF APPOINTMENT OF INDEPENDENT DIRECTOR At GM Explanatory Statement shall be annexed along with Notice Indicate the justification for choosing the appointee for appointment

COMMITTEE IN WHICH INDEPENDENT DIRECTORS SHALL BE MEMBER Independent Director Audit Committee Nomination & Remuneration Committee CSR Committee The Institute of Chartered Accountants of India along with The Institute of Companies Secretaries of India and The Institute of Cost Accountants of India has maintained online repository. Please follow the link for details. Click here to go to Independent Director Repository

CSR COMMITTEE Every company having net worth of Rs. 500 crore or turnover of 1000 crore or net profit of 5 crore shall form CSR committee Board consisting of three or more directors out of which one shall be independent director. CSR committee shall formulate policy, recommend the amount of expenditure, monitor the CSR policy from time to time etc.

AUDIT COMMITTEE Requirement Every listed company shall have audit committee; or Other public company having paid up capital of 10 crore or more, or turnover of 100 crore or more, or loans or borrowings exceeding 50 crore Formation Consist of three minimum directors with independent directors forming majority Audit committee existing before commencement of this act shall within 1 year re-constituted according to 2013 Act Duties of Audit Committee Recommend for appointment, remuneration and terms of appointment. Review and monitor the auditors independence and performance Examination of financial statement and auditors report thereon. etc

NOMINATION AND REMUNERATION COMMITTEE Requirement Every listed company shall have audit committee; or Other public company having paid up capital of 10 crore or more, or turnover of 100 crore or more, or loans or borrowings exceeding 50 crore Formation Consist of three or more non-executive directors out of which not less than one half shall be independent directors But, chairperson (either executive or non-executive) can be appointed as a member But cannot chair the committee Duties of Nomination Committee Shall formulate the criteria for determining qualification, positive attributes and independence of director. Shall identify the person who are capable of being directors and who may be appointed in senior management.

SCHEDULE IV : CODE FOR INDEPENDENT DIRECTOR Guidelines for professional Conduct Uphold ethical standards of integrity and probity Act actively and constructively while exercising his duties Exercise his responsibilities in bona fide manner in the interest of company. Devote sufficient time and attention to his professional obligation for informed and balanced decision making Not abuse his position to detriment of the company or its shareholders or for the purpose of gaining direct or indirect personal advantage. Assist the company in implementing the best corporate governance practices.

SCHEDULE IV : CODE FOR INDEPENDENT DIRECTOR Roles and functions of Independent Director Help in bringing the independent judgment on issues of strategy, performance, risk management, resources, key appointments etc. Bring an objective view in the evaluation of the performance of board and management. Scrutinize the performance of management in meeting agreed goals and monitor the reporting performance. Balance and safeguard the interest of all the stakeholders particularly minority stakeholders. moderate and arbitrate in the interest of the company as a whole, in situations of conflict between management and shareholder’s interest.

SCHEDULE IV : CODE FOR INDEPENDENT DIRECTOR Duties of Independent Director Strive to attend all the meetings of Board of directors and board committee where he is a member and general meeting of the company. Participate constructively and actively in the committees of the board in which he is a chairperson or member keep themselves well informed about the company and external environment in which company operates. Acting within his authority, assist in protecting the legitimate interest of the company, shareholders and its employees Not disclose confidential information, including commercial secrets, technologies, advertising and sales promotional plans, unpublished price sensitive information unless such disclosure is expressly approved by the Board of Directors.

SCHEDULE IV : CODE FOR INDEPENDENT DIRECTOR Separate meeting The independent director shall hold at least one meeting in a year, without the attendance of non-independent directors and member of management. All the independent director of the company shall strive to present at such meeting. The meeting shall :- a) review the performance of non-independent directors and the board as the whole. b) review the performance of the chairperson of the company, taking into account the views of executive director and non-executive directors; c) assess the quality, quantity and timeliness of flow of information between the company management and the board that is necessary for the board to effectively and reasonably perform their duties.

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