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The inception of the idea of the autonomous or an independent direcor under the current corporate law administration a can be traced back to the proposals of the Kumar Mangalam Birla board of trustees (1999), the Naresh Chandra panel (2002) and the Narayana Murthy council (2003). Further to these expert recommendations, the expression “independent directors” seems intriguing. In India when the Securities and Exchange Board of India a joined provision 49 in the Listing Agreement. Statement 49 gives a comprehensive meaning of independent directors, covering under its an ambit non-official executives who don’t have any material or monetary association with the organization, its promoters, administration or auxiliaries, which may influence the autonomy of their judgment.
Independent Directors as per the Listing Agreement, can’t be substantial or major shareholders of the organization (i.e. owning at least 2% of the voting rights), however they are qualified to get remuneration in accordance with the decision of the Board and after obtaining prior permissions and approval of the shareholders. The Company’s Act of 1956 does not mention the expression “independent directors” India’s listing standards require the boards of listed companies to include independent directors but neither the Listing Agreement nor the 1956 act precisely define their roles and liabilities.. The Company’s Act of 1956 places independent directors on the same platform or an equal footing as of other directors with regards to purposes of decision making and does not specify any privilege, duty or function which they ought to perform or the liabilities they could incur for the actions of the board. This has prompted to a situation of uncertainty regarding the roles and responsibilities of the independent directors. This has brought the Indian law in line with the legal position in jurisdictions such as UK, where the codified duties and roles of an independent director exist alongside their common law duties.
An independent director of a company is a non-executive director who:
Only receives his directors remuneration but apart from that does not have any material pecuniary relationships or transactions with the company or with anyone else in the management
In general, 1/3rd of the total number of a directors as Independent Directors should be an adequate for a company having significant a public interest, irrespective of a whether the Chairman is executive or non-executive, the independent or not. In certain cases Regulators may specify a requirement of Independent Directors a for companies falling within their regulatory domain. Nominee the directors appointed by the any institution or in a pursuance of any agreement or Government appointees representing Government shareholding should not be deemed to be Independent Directors.
The J.J Irani Committee, a specialist panel constituted by the Ministry of Corporate Affairs to advise the Government on the new organization law, has in its report talked about in detail the progressions required in the arrangements, in relation to the Board of Directors. As for the Independent Directors, the Committee is of the view that given the obligation an of the Board to adjust different interests, t. This is an especially vital for open organizations or organizations, with a critical open intrigue. While executiveat given the responsibility a of the Board to balance various interests, the presence of a Independent a directors on the Board,s speaking to organizations, particular interests would be a bound to the point of view managed by such interests, Independent Directors be would have the capacity to bring a component of objectivity, to Board prepare in the a general interests of the organization and in this way to the event of minority interests and littler shareholders..
Law ought to, dependence, therefore, is not to be, viewed merely as independence a from promoter a Interests but from the point of view of vulnerable stakeholders, who cannot otherwise get their voice heard, perceive the guideline of Independent theDirectors and spell out their part, capabilities and risk. However necessity of nearness of Independent Directors may change every now and then relying upon the size and sort of organization. There can’t be a solitary technique that will suit all organizations. Accordingly number of Independent directors might be recommended through standards for various classes of organizations.
There are a few particular advantages that an independent top managerial staff can convey to an organization, the most importantly is that the interior regulations that are can be controlled, and the fraud or mismanagement which is being done by the organization can be conveyed to the shareholders of the organization and to the general population at large. It has some different advantages additionally, which includes:
The requirement for the independent directors can be made out from the fact that they are relied upon to be independent from the administration and go about as the trustees of shareholders. This infers they are committed to be completely mindful of the direct which is going ahead in the associations and furthermore to stand firm as and when vital on pertinent issues.
The significance of the part of an Independent Director is of great significances. The rules, part and capacities and obligations and so on are comprehensively set out in a code portrayed in Schedule IV of the Companies Act, 2013.
The code sets out certain critical capacities like protecting the enthusiasm of all partners, especially the minority holders, blending the clashing enthusiasm of the partners, breaking down the execution of administration, intervening in circumstances like the contention amongst administration and the shareholder’s advantage, and so on.
The independent directors are additionally anticipated that would go to the general meetings of the organization and to keep themselves mindful of the matters which are going ahead in the organization.
Responsibilities towards shareholders and Stakeholders:
Independent Directors have different parts to satisfy in their official capacity. Following are the most critical ones:
The Companies Act, 2013, provides for mandatory appointment of independent directors in following committees so as to meet the corporate governance requirements:
Being an individual from the Board, their part and obligations are particularly like whatever other director of the Board. The trustee obligations of care, industriousness and acting in accordance with some basic honesty apply similarly to independent directors as to different directors.
It is the obligation of the independent director to guarantee that each of those issues that are essential for the organization are appropriately tended to by the board of Directors. The goals and obligations of the independent directors are same as that of the official directors. However, as compared to the executive directors the time that is needed to be devoted by the independent director and the degree of skill and care required for the company, both are less.
Whether are there any shortcomings with respect to the Independent director.
After critically analysing all the provisions, advantages and shortcomings of the Independent Directors, the concept of Independent director is a boon or bane to the companies.
After leveling all the advantages and disadvantages the author have come to the final analysis, and herein lies the paradox, with the leadership and management functions mostly lies with the management, in the absence of an overhaul of the system, independent directors will only be able to discharge their duties and functions effectively if management itself is committed to the role of such directors. This is specifically a case where companies do not have board with a lot of Independent directors. Even where the names of the Independent directors is added to add more value to the company, effect of Board composition could be spurious because such performance could be a function of the quality of management itself.
If high quality managers are more likely to place outsiders on Boards than poor quality managers who do not want to be monitored, a finding that shareholders are better served by outsider-dominated Boards is simply an illustration of the better management of these companies. To this it should be added that high quality managers appreciate the valuable role of independent directors and will take steps to allow them to play their role effectively. Internal managers can use their knowledge of the organization to nominate outside Board members with relevant complementary knowledge: for example, outsiders with expertise in capital markets, corporate law, or relevant technology who provide an important support function to the top managers in dealing with specialized decision problems.
The importance of this cannot be overstated. There is a tendency to think that simply having independent directors improves corporate governance. The reality is sometimes the opposite. Unless there are independent directors who are truly independent, and have the strength of character and ability to perform an effective monitoring function, the presence of independent directors acts as a smokescreen and a snare for the unwary investor who may pay a higher price for equity on the basis of a supposedly better corporate governance structure. Good corporate governance is not about having a certain number of independent directors, of the number of Board meetings in a year, or even about whether there are Board committees that have a majority of independent directors. These tell us only about structures and while relevant, does not provide the more important information about how the independent directors or the Board really operate.
Under the Company’s Act, 2013, the liabilities of Independent Directors has been reduced and limited to: “only in respect of acts of omission or commission by a company which had occurred with his knowledge, attributable through board processes, and with his consent or where he had not acted diligently”.
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