Section 149 (6) an independent director in relation to a company means a director other than a managing director or a whole-time director or a nominee director.
Section 149 (6) an independent director in relation to a company means a director other than a managing director or a whole-time director or a nominee director.
Contents
- 0.1 Who is an independent director?
- 0.2 How is an independent director appointed in a company?
- 0.3 ROLE OF AN INDEPENDENT DIRECTOR
- 1 DUTIES OF AN INDEPENDENT DIRECTOR
- 1.1 🧑⚖️ Who is an Independent Director?
- 1.2 📘 Legal Definition
- 1.3 🧾 Eligibility Criteria
- 1.4 🏛️ Applicability: When is an Independent Director Mandatory?
- 1.5 📌 Duties of an Independent Director (as per Schedule IV of the Act)
- 1.6 📆 Tenure of an Independent Director
- 1.7 🧑⚖️ Rights & Restrictions
- 1.8 ✅ Advantages of Appointing Independent Directors
- 1.9 🔍 Real-World Example
- 1.10 🧾 Summary Table
Who is an independent director?
An independent director is a non-executive director of the company. Independent director refers to a member of a board of directors who does not have a material relationship with a company and is neither part of its executive team nor involved in the day-to-day operations of the company.
According to section 149 of the companies Act, 2025, an independent director in relation to a company, a director other than managing director and whole-time director or a nominee director.
· Who is or who was not a promoter of the company or its holding, subsidiary or associate company and who is not related to promoters or directors in the company.
· Who has or had a pecuniary relationship with the company.
· None of whose relative has or had a pecuniary relationship with the company.
· Who possess the qualifications as may be provided.
An independent director should not be a partner or executive director of the auditors, lawyers, consultants of the company in preceding three years and should not hold 2% or more than that of shares in the company.
How is an independent director appointed in a company?
The appointment of the director of the company shall be approved in the shareholders meeting. The appointment of an independent director is formalised through the letter of appointment, which shall include.
· Term of appointment
· The expectations of the board-level committee from the appointed director.
· The duties along with liabilities
· Provisions for directors insurance, if any.
· The actions which the director does not have to perform while operating in a firm.
· The remuneration, profit related commission, expenses.
· The code of business ethics
The report of an independent director shall be on the basis of the report of performance evaluation.
ROLE OF AN INDEPENDENT DIRECTOR
Independent director acts as a guide and mentor to the company. An independent director role is to improve a company’s credibility and helps in risk management. They are responsible for ensuring better governance by actively participating in various committees set by the company. The following roles are:
· Fulfilling useful role in succession planning in the company.
· He must support in the issues like strategy, risk management, key appointments and performance.
- scrutinizing, monitoring and reporting management’s performance regarding goals and objectives agreed in the board meetings
- balance the conflicting interest of the stakeholders
- · Safeguard the interest of the shareholders, particularly minority shareholders.
- · Establishing a suitable level of remuneration.
DUTIES OF AN INDEPENDENT DIRECTOR
- The duties of the independent director are:
- · To attend the company’s general meetings.
- · To attend the Board of directors meeting and board committees meetings.
- · Should have the knowledge of the company and the environment in which it operates
- · Not to disclose confidential and official information including commercial secrets and technologies.
- participate in the Board’s committee being chairpersons or members of that committee
- Acting within the authority and protecting the interest of shareholders and its employees.
Independent directors have a crucial role to play in the functioning of the company.
🧑⚖️ Who is an Independent Director?
An Independent Director is a non-executive director of a company who does not have any material or pecuniary relationship with the company, its promoters, or management. Their main role is to provide unbiased, objective guidance to the board and protect the interests of all stakeholders, especially minority shareholders.
📘 Legal Definition
As per Section 149(6) of the Companies Act, 2025 (India):
An independent director is a director other than a managing or whole-time director or nominee director, who:
- Is not a promoter of the company or related to promoters/directors
- Has no financial relationship (other than remuneration as a director)
- Is not a key managerial person (KMP) or employee of the company or its group (in the past 3 years)
- Is not a supplier, customer, or consultant with significant dealings with the company
🧾 Eligibility Criteria
| Criteria | Requirement |
|---|---|
| 🔍 Independence | No financial interest, employment, or family ties with the company |
| 🎓 Qualification | Must have experience in business, finance, law, or management |
| 🧠 Registration | Must be registered on the Independent Director’s Databank (maintained by IICA) |
| 📚 Exam | Must pass the Online Proficiency Self-Assessment Test, unless exempted (e.g., experienced professionals) |
🏛️ Applicability: When is an Independent Director Mandatory?
| Company Type | Requirement |
|---|---|
| Listed Companies | At least 1/3rd of Board must be Independent Directors |
| Unlisted Public Companies (meeting any 2 of the following): |
- Paid-up capital ≥ ₹10 crore
- Turnover ≥ ₹100 crore
- Outstanding loans ≥ ₹50 crore | Must appoint at least 2 Independent Directors |
📌 Duties of an Independent Director (as per Schedule IV of the Act)
| Duty | Description |
|---|---|
| 🛡️ Protect stakeholders | Safeguard interests of minority shareholders |
| 🧠 Exercise objectivity | Independent judgment in decisions |
| 👨⚖️ Monitor governance | Evaluate performance of board and committees |
| 📃 Report concerns | Raise issues if company acts unlawfully or unethically |
| 🤝 Avoid conflicts | Disclose interest and avoid situations of conflict |
📆 Tenure of an Independent Director
- 1 term = up to 5 consecutive years
- Can be reappointed for one more term (subject to shareholder approval)
- Cooling-off period of 3 years before reappointment in the same company
🧑⚖️ Rights & Restrictions
| Rights | Restrictions |
|---|---|
| Attend and vote at board meetings | Cannot be involved in day-to-day operations |
| Seek information and raise concerns | Cannot receive stock options |
| Serve on committees (Audit, Nomination, etc.) | Cannot have a material financial relationship with the company |
✅ Advantages of Appointing Independent Directors
- ✔️ Improved corporate governance
- ✔️ Enhanced credibility and investor trust
- ✔️ Objective checks and balances
- ✔️ Compliance with SEBI and Companies Act norms
🔍 Real-World Example
A listed company like Infosys appoints professionals such as retired judges, former civil servants, or experienced CEOs as independent directors to bring neutral perspectives to strategic and ethical decisions.
🧾 Summary Table
| Factor | Independent Director |
|---|---|
| Role | Non-executive, impartial overseer |
| Appointment | By board/shareholders |
| Required In | Listed & large unlisted public companies |
| Tenure | 5 years (renewable once) |
| Pay | Sitting fee + profit-linked commission (no stock options) |
| Legal Basis | Section 149 of Companies Act, SEBI (LODR) Regulations |
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