Independent Directors - Towards Good Governance

The concept of independent directors was initially introduced with a view to increase transparency, fairness and independence in decision making and, to protect stake holders’ interest. So far only listed public companies were required to appoint independent directors under the Listing Agreement. Now, the Companies Act, 2013 extends such requirement to cover big public companies also. The move may infuse more objectivity in decision making of companies, but it is set to create some turmoil as well. Finding a person who has all the prescribed qualifications will be a challenge. Recently SEBI has also brought about reforms to bring the requirements of Clause 49 of the Listing Agreement in line with the Companies Act, 2013, which are scheduled to become effective on October 1, 2014.

Independent Directors Under the Companies Act, 2013

At least 1/3rd of the total number of directors of every listed public company should be independent directors. As per the provisions of Draft Rules prescribed for this section, apart from listed companies following companies to have at least 1/3rd of the number of directors as independent directors: 

  • Public companies having paid - up share capital of Rs 100 crore or more; or 
  • Public companies having turnover of Rs 300 crore or more; or 
  • Public companies which in aggregate have outstanding loans, or borrowings, or debentures, or deposits, exceeding Rs. 200 crore or more.

This article is originally published on and to read the full article, please visit the link here - Companies Act 2013 Classroom Series - Independent Director...

To discuss the provisions or some professional query, feel free to contact:

Mr. Ankit Singhi
+9111406222208, +919910888952,
Ms. Deepali Mendiratta


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