Can someone tell me as to till what extent are independent directors liable?
Abhishek Mahanty (student) (31 Points)
12 July 2010Can someone tell me as to till what extent are independent directors liable?
Nitin Grover
(CS)
(1228 Points)
Replied 13 July 2010
Dear Abhishek
firstly i wanna say one thing that their is diff between Non-Executive Director and Indep. Director. Independent Director can not take part in Reg Business and they are not liable if something happens without there knowledge or by threat.
Regards
Abhishek Mahanty
(student)
(31 Points)
Replied 13 July 2010
But when it comes to liability do they both share same liabilities. Secondly what is their liability in case of industrial disasters.
Nitin Grover
(CS)
(1228 Points)
Replied 13 July 2010
Yogesh Bhatt
(Company Secretary)
(475 Points)
Replied 13 July 2010
One CASE of :
Two industry bodies CII and Assocham have sought differential treatment for non-executive directors in industrial catastrophes such as the Bhopal Gas Tragedy, a move that would bring down liability for such directors on board.
CII president Hari S Bhartia said the government should treat non-executive members of the board, including non-executive chairman differently when it comes to directors’ liabilities. He was speaking on the conviction of industrialist Keshub Mahindra, a former non-executive director of Union Carbide who was sentenced along with seven others with imprisonment up to two years by a Bhopal court earlier this month in the Bhopal Gas tragedy case.
“While as board members, independent and non-executive directors have the same legal duties and obligations as executive directors, however, because of their limited involvement in day-to-day running of the company, it is undesirable for the law to expose them to personal liability,” CII said,
CII pointed out Mr Mahindra was charged under the same sections as the officers-in-default, namely the managing director, executive director, works manager and others directly involved in the day-to-day running of the company. The Companies Act (1956) does not differentiate between different categories of directors in terms of liabilities.
“We strongly recommend the law regarding the potential liability of non-executive and independent directors needs to undergo a change. Non-executive directors cannot be made to undergo the ordeal of a trial for offence of non-compliance with a statutory provision unless it can be established prima facie that they were liable for the failure on part of the company,” the industry body said.
Regards,
Yogesh Bhatt.
Yogesh Bhatt
(Company Secretary)
(475 Points)
Replied 13 July 2010
Main Diffrences are :
Independent directors are directors who apart from receiving director’s remuneration do not have any other material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in the judgement of the board may affect their independence of judgement.
Powers
- Equal Member of Board
- Power to demand information
- Power to exercise her vote
- Power to govern
wheres as :
A non-executive director (NED, also NXD) or outside director is a member of the board of directors of a company who does not form part of the executive management team. He or she is not an employee of the company or affiliated with it in any other way. They are differentiated from inside directors, who are members of the board also serving as executive managers of the company (most often as corporate officers).
Non-executive directors have responsibilities in the following areas, according to the 2003 report by Derek Higgs commissioned by the British Government:
* Strategy: Non-executive directors should constructively challenge and contribute to the development of strategy.
* Performance: Non-executive directors should scrutinise the performance of management in meeting agreed goals and objectives and monitoring, and where necessary removing, senior management and in succession planning.
NED's should also provide independent views on:
* Resources
* Appointments
* Standards of conduct
Non-executive directors are the custodians of the governance process. They are not involved in the day-to-day running of business but monitor the executive activity and contribute to the development of strategy.
Conclusion :
Independent directors are directors who apart from receiving director’s remuneration do not have any other material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in the judgement of the board may affect their independence of judgement.
and
A non-executive director (NED, also NXD) or outside director is a member of the board of directors of a company who does not form part of the executive management team. He or she is not an employee of the company or affiliated with it in any other way
Regards,
Yogesh Bhatt
Master GSTR-9 and 9C with India's First Unique Live Course with Live practical training
CAclubindia
