independent director of a company

This query is : Resolved

amir (Querist)
Follow

21 February 2010 Director, Non-executive ( Independent ) is involved in the day to day running of the business . and want to no what is the exact deifnation of Director, Non-executive ( Independent ). and his libilities toward comapny .

Jagruti (CS)

Jagruti (CS) (Expert)
Follow

22 February 2010 Director is defined in Section 2(13) of the Companies Act, 1956.

It means any person appointed by the Company as Director in Board Meeting or General Meeting.

It is furthur classified as Executive means who is in full services of the Company and non executive director means who is not in employment or services and may be appointed for expert advice.

Independent director is no where defined in the Companies Act. However as per Clause 49 of the listing agreement, term 'Independent Director' means

shall mean a non-executive director of the company who:
a. apart from receiving directorâ€™s remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates which may affect independence of the director;
b. is not related to promoters or persons occupying management positions at the board level or at one level below the board;
c. has not been an executive of the company in the immediately preceding three financial years;
d. is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following:
i. the statutory audit firm or the internal audit firm that is associated with the company, and
ii. the legal firm(s) and consulting firm(s) that have a material association with the company.
e. is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director;
f. is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares.
g. is not less than 21 years of age

amir

amir (Querist)
Follow

24 February 2010 thanks mam thanks for ur replay but i know this definition of Director, Non-executive ( Independent ) .
mam want ur suggestion about following definition :
Non-working director of a firm who is not an executive director and, therefore, does not participate in the day-to-day management of the firm. He or she is usually involved in planning and policy making, and is sometimes included to lend prestige to the firm due to his or her standing in the community. Non-executive directors are expected to monitor and challenge the performance of the executive directors and the management, and to take a determined stand in the interests of the firm and its stakeholders. They are generally held equally liable as the executive directors under certain statutory requirements such as tax laws. Also called external director, independent director, or outside director.

Upgrade to CAclubindia Pro. Subscribe Now!

amir

amir (Querist)
Follow

24 February 2010 Independent directors according to Companies Act are defined as persons who:
1.Are not relatives of the chairman, managing director, whole time director, or the company secretary
2.Should not have been auditors, internal auditors, legal advisors or consultants to the company during any of the preceding three financial years
3.Should not have been suppliers, vendors or customers of the company
4.Should not hold below two per cent of the shares of the company, presently or in past
5.Should not have held any position in the company
6.Should not have been a director for a continuous period of nine years
7.Nominee directors of banks or FIs cannot be considered independent directors

amir

amir (Querist)
Follow

24 February 2010 if any one knows more .......
plz tell me

Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
Follow

01 August 2024 The role and definition of a Non-Executive Independent Director (NEID) are critical for corporate governance. Here’s a detailed overview, including the responsibilities and liabilities, with an emphasis on the current regulatory framework, particularly in the context of the Companies Act, 2013 in India.

### Definition and Role of Non-Executive Independent Directors

**Non-Executive Director (NED):**
A Non-Executive Director is a member of the board of directors who does not participate in the day-to-day management of the company but is involved in broader policy-making and planning activities. NEDs bring an external perspective to the board and are responsible for monitoring and evaluating the performance of the executive directors and the overall management.

**Independent Director (ID):**
An Independent Director is a type of non-executive director who, apart from receiving a director's remuneration, does not have any other material pecuniary relationship or transactions with the company, its promoters, its management, or its subsidiaries, which could affect their independence.

### Key Criteria for Independent Directors as per the Companies Act, 2013 (India):

1. **Non-Relationship with Key Personnel:**
- Should not be a relative of the company’s chairman, managing director, whole-time director, or company secretary.

2. **No Professional or Transactional Relationship:**
- Should not have been an auditor, internal auditor, legal advisor, or consultant to the company during any of the preceding three financial years.
- Should not have been a supplier, vendor, or customer of the company.

3. **Shareholding Restrictions:**
- Should not hold more than 2% of the shares of the company, currently or in the past.

4. **Tenure:**
- Should not have held any position in the company.
- Should not have been a director for a continuous period of nine years.

5. **Exclusions:**
- Nominee directors of banks or financial institutions cannot be considered independent directors.

### Responsibilities and Liabilities of Independent Directors

**Responsibilities:**

1. **Strategic Guidance:**
- Contribute to strategic planning and policy-making.

2. **Monitoring:**
- Oversee the performance of executive directors and management.
- Ensure the integrity of financial information and that financial controls and systems of risk management are robust and defensible.

3. **Stakeholder Interests:**
- Protect the interests of all stakeholders, particularly minority shareholders.

4. **Compliance:**
- Ensure compliance with applicable laws and regulations.

5. **Ethics and Governance:**
- Uphold the highest standards of corporate governance and ethical conduct.

**Liabilities:**

1. **Statutory Liabilities:**
- Independent Directors are generally held equally liable as executive directors under certain statutory requirements, such as tax laws and specific provisions of the Companies Act, 2013.

2. **Diligence and Care:**
- Expected to exercise due diligence, care, and skill in their role. Failure to do so can lead to personal liability.

3. **Fiduciary Duties:**
- Must act in the best interest of the company and its stakeholders. Breach of fiduciary duties can result in legal consequences.

### Conclusion

The definition you provided aligns with the role of Non-Executive Independent Directors. They play a crucial role in ensuring robust governance and providing an independent perspective to the board. Their independence is vital to prevent conflicts of interest and ensure that decisions are made in the best interest of the company and its stakeholders.

However, it is essential to understand that while Independent Directors do not engage in daily operations, they carry significant responsibilities and liabilities, ensuring that they contribute effectively to the company's governance and performance.

For accurate legal and regulatory guidance, it’s advisable to consult with legal professionals or corporate governance experts familiar with the specific jurisdiction’s laws and regulations.