Regulatory Requirements

• Who is an Independent Director (ID)?

As per sub-section 6 of Section 149 of the Act, ID means a director other than a managing director or whole time director or a nominee director-

1. Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience.
   
   
2. 
   
   1. Who is or was not a promoter of the company, or its holding, subsidiary or associate company.
   2. Who is not related to promoters or directors in the company, its holding, subsidiary or associate company.
      
      
3. 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.
   
   
4. 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
   
   
5. Who, neither himself nor any of his relatives
   
   
   1. 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
      
      
   2. 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 -
      
      
      1. A firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or
      2. 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
         
         
   3. Holds together with his relatives two per cent. or more of the total voting power of the company; or
      
      
   4. Is a Chief Executive or director, by whatever name called, of any nonprofit organisation 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
      
      
6. Who possesses such other qualifications as may be prescribed.

Qualifications of Independent Director

Rule 5 of the Companies (Appointment and Qualification of Directors) Rules, 2014 to Chapter XI of Companies Act 2013 specifies that an Independent Director shall possess appropriate 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.

• Selection Process

1. Selection Procedure -IDs may be selected from a databank containing names, addresses and qualifications of persons who are eligible and willing to act as IDs maintained by anybody, institute or association as may be notified by the Central Govt. The responsibility for exercising due diligence before selecting a person from data bank, shall be with the company making such appointment.
   
   
2. Selection of Independent Directors:
   
   1. Appointment process of independent directors shall be independent of the company management; while selecting independent directors the Board shall ensure that there is appropriate balance of skills, experience and knowledge in the Board so as to enable the Board to discharge its functions and duties effectively.
      
      
   2. Identify core competencies; create competency grid outlining competencies of current directors and the competencies required.
      
      
   3. Competencies which are lacking, search for a pool of candidate directors eminent persons of proven integrity with requisite professional skills, experience and knowledge.
      
      
   4. Companies need board members with backgrounds and skills that complement each other and are related to mission of the companies.
      
      
   5. Companies need persons of high integrity, ethical standards, sound judgement and who can be forth-right in giving views, give rich inputs which help in taking decisions, and even disagree with MD or CEO sometimes, if required. The behaviour analysis of prospective candidates must be verified.
      
      
3. Company's board will select and approve most suitable person for the appointment of ID out of the shortlisted candidates recommended by the Nomination committee. Thereafter, the person selected can be appointed as an Additional Director. The final approval of the appointment of ID shall be given by the shareholders in the Annual General Meeting of the company. (Sec 150, Chapter XI of Companies Act refers)
   
   For further information on appointment and qualification regulatory requirements: .

No person shall be appointed as a director of a company, unless, he/she has been allotted a Director Identification Number (DIN). (Ref: Sec 152(3), Chapter XI of Companies Act, 2013). DIN is a unique Identification Number allotted to an individual who is appointed as director of a company, upon making an application in form DIR-3 pursuant to section 153 & 154 of the Companies Act, 2013