INDEPENDENT DIRECTOR

Whole ime Director, Nominee Director.

Nlat
MD.
ot
P o s s e s s e s r e l e v a n t Experience,
Expertise and Integrity in the opinion of the BOD.
sessesrelevant
-

2. Promoter of the Company, its holding. subsidiary or associate company.

Not a
loted to Promoters or Directors or the Company, its holding, subsidiary or
Not relate

associate company.

last 22 immediately
preceding financial years or current financial year
In the
he
last
imme

n o Pecuniary Relationship, other than remuneration as such director or having

a. nsaction not exceeding 10% of his total income, with the company, its holding,
trans
or associate company.
subsidiary
*Relatives
None of his
b.
interest in the company, its holding, subsidiary
) is holding any security or

However, the relative may hold security or interest

or associate company.
face value not exceeding 50 lakhs or 2% of the paid-
in the company of
of the company,
up capital
or associate company
to the company, its holding, subsidiary
(i) is indebted for more than 50 lakhs,
ortheir promoters, or directors, in connection with the
guarantee or provided any security
(ii) has given a
to the company, its holding, subsidiary
indebtedness of any third person
directors of such holding
or their promoters, or
or associate company

company, for more than50 lakhs, to 2%

Relationship or Transaction amounting
(iv) has any other Pecuniary its
turnover or total income, with the company,
or m o r e of its gross
or their promoters or directors.
associate company,
holding, subsidiary or

financial years, neither

himself or his relatives :
6. In the last 3 preceding its
a. holds or have held the position of
KMP or employee
a of the
company,
an employee
However, if his relative is
holding, subsidiary or associate company. it will not affect his independence.
in the company in the last 3 financial years,
b. Is or has been an employee, partner, proprietor.
or associate company.
its holding, subsidiary
. in an ofthe
audit fim -
company,
its holding, subsidiary
or
in a consulting or legal fim of the company,
-

.
amounting
transaction with the company
aSsoCiate company who has had
10% or more of the gross turnover of
such a firm.
power of the
company.
O 0 s together with his relatives 2% or more ofthe total voting
more
CEO/Director of NPO that receives 25%% or
ether himself nor his relative is company orany
from the its holding, subsidiary or associate
receipts company,
of the total voting power
or n e
holds 2% or more
C promoters or directos or
company.
who is

with reference to any person

means any one one
°Relative
related and
the term
) they are members of HUF, (ii) they are husband
and wire or ( y

person is Teelated in the

TSom shall the other in such manner as may be prescribed. related to another
she is
be deemed to be
of unother, if he
or
tollowing
1. Father
manner namely n e relative
son).
3. Son (including step
Son's (including step father), 2.
Mother (including step mother),
step o e r) and 8.
Sister

6. Daughter's Husband, 7. Brother (including

(including step sister)
ghter,
99. Possesses the qualification preseribed by Rule 5 of the Companies (A
and Qualification of Directors) Rules,
2014 which provides thosPpointment ppointmo
(a) He must possess adequate skill, knowledge, experience in one or mora c
finance, law, management, Sales, corporate gOvernance, technical onerati
disciplines related to the company's business. or

(b) Incase independent directors are members of Audit

committee -

they mustst be
financially literate.
(c) Should be above the age of 21 years.
(d) Should not possess any disqualifications as per section 164.
10. Cannot be Independent director in more than 7
companies.
11. Must file Declaration of Independence at the 1st BOD
of the company, and then at
every 1st BOD held in every financial year.
12. Follow Code of Conduct given in Schedule IV of Companies Act, 2013.
13. Appointment by ordinary resolution for 5 years, next 5 years only
resolution, then cooling off period for 3 by passing special
years.
 Figure 11.1

Small Shareholders Director

Listed Company may

Suo moto upon notice by not less than

1000 small shareholders
or
Choose 1/10 of the total number of
a representative of small shareholders
small shareholders (whichever is lower)

Propose a person to be
appointed along with his
declaration of eligibility and
consent to act as director
Appointment of Directors

In case no provision is made in the articles for appointmens.

st Diretor,
to Memorandum (who are individuals) shall he d
subscribers ned to be
Directors, till directors
are appointed. First
Person to be appointed must furnish his DIN & a declaration
on that he
to become a director. is
disqualified
Every person who has been appointed
to hold office of a director chal.
all on or
before the appointment, furnish to the company a consent in wWritine to
act as
such in Form DIR-2.
1/3d or nearest to 1/3rd of directors liable to retire by rotation.
Directors to retire by rotation shall be those who have been longest in offic
since their last appointment.
director or some other
Company may fill up vacancy by appointing retiring
and the meeting has not expressly resolvet
person, but if vacancy not filled up
to same day in next
not to fill up the vacancy, the meeting shall stand adjourned
meeting, then remg
week. If the vacancy is not filled up at the adjourned
subject to conditions.
director shall be deemed to be re-appointed,

Person other than retiring director can also stand for directorship by depo
if
a sum ofR1 lakh. Refund of deposit if candidate wins or even canu independent

private companies,
25% votes. However, this does not applyto
directors, directors recommended by the Nomination and Remuner ompany
hi
hichs
and a director recommended by the Board of Directors of a co

not required to constitute Nomination and Remuneration O

 Categories of Directors in a
Public Company

Rotational Directors
Not less than 2/3 of the
Non-Rotational
(for fixed
a
term)
total number of directors

1/3 of rotational directors

must retire at every AGM 4

For candidature
Fill-up the vacancy by 14 days' notice
as a director
appointing the retiring with deposit of
director or some other
1 lakh rupees
person.

Deposit refunded if
Adjournment of meeting elected gets more
or
total
than 25% of
valid votes cast
Even not filled at
adjourned meeting then
deemed reappointment of
retiring director, except in
certain situations
 DISQUALIFICATIONS OFA DIRECTOR US 54.
1. Unsound mind.
2 Undischarged insolvent.

3 Applied to be adjudged insolvent.

4 Convicted by a Court of an offence involving moral turpitude and sent
for 6 months or more and 5 years have not yet lapsed. a
5. Disqualified by order of Court or Tribunal.
6. Not paid call and 6 months have lapsed from the last date fixed
of call.
for pavmenent
7 Does not have DIN.
8. Holds Directorships beyond prescribed limit (i.e. in than 20
more
companies
*9. During the last 5 years, convicted of an offence related to Related Party
Transactions.
10. A person who is director of a company which has
a

a. not filed financial statements/annual returns for past 3 financial years,

or

bb. failed to repay deposits or interest on them, redeem debentures or

pay interest on
them or pay dividend which has been declared, for 1 (one) year or
more
be director of this any other company for 5 years from
cannot appointed as or

the date of contravention.

director of his
However, he shall not be disqualified from being a
for 6
company months.
In all of
the above cases, this
disqualification shall continue to apply even
appeal filed against conviction order.
Note: Private
Companies can provide additional disqualifications.
Number of Directorships

Maximum Directorships that an individual can hold, including alternate directorshios

is 20, of which not more than 10 can bepublic companies. SEBI has reduced
listed entity directorships from 10 to 8 by April 2019, and to 7 by April 2020.
 compute the limit of public companies, directorship
To
of private company
which is either holding or subsidiary of public company, will also be included

Directorship in a dormant company to be excluded from the figure 20

 VACATION OF OFFICE OF DIRECTOR U/S 167

. Incurs disqualification u/s 164.

from all BOD meetings for 1 year without leave of absence.
2 Absent
Fails to disclose his interest in any contract u/s 184.
3
4. Enters into contract in which he is directly
interested /s 184.

5 Disqualified by a order of Court or Tribunal.

otherwise
6. Convicted by Court of any offence, whether involving moral turpitude or
and sent to imprisonment for 6 months or more.
7. Removed by Shareholders or Tribunal.
virtue of which he is appointed director.
8 Ceases to hold such office by as

In these 2 cases, office shall not be vacated for 30 days from date of conviction
order or where appeal filed, then until expiry of 7 days from date of appeal.
Note If he holds office after having become vacant,
Finefrom7 1 lakh to 7 5 lakhs
APPOINTMENT OF DIRECTORS BY THE BOARD OF DIRECTORS (SEC. 161)

ai18 ssig Figure 11.3

Appointment of Directors by
the Board

Alternate Nominee Casual

Additional
Sec.161(1) Sec.161(2) Sec.161(3)| Sec.161(4)
 TABLE 11.1:DIFFERENCE BETWEEN MANAGING DIRECTOR AND MANAC
ANAGER
Managing Director
Manager
1. Power Managing Directoris entrusted | AManager hasthe
with substantial powers of| ofthe whole of the management
affairs.nf
management of the affairsof company. the
the company.
2. Directorship Managing Director must be a A manager need not he a
director in the company. director of the company.
3. Number Acompany may have morethan There can only be one
one managing director. in the company
manager
4. Remuneration Remuneration can be 10%
of | Remuneration cannot exceed
net profits where company | 5% of the net profits.
has more than one
managing
director.
TABLE 11.2: DIFFERENCE BETWEEN MANAGING DIRECTOR
AND WHOLE TIME DIRECTOR
Managing Director Whole Time Director
1. Number A person can be a
managing A person cannot be a whole-
director of more than one time director of
company at a time.
more than
one company at a time.
2. Manager A Managing Director and A company have whole
can
a
Manager cannot be time director and manager
appointed in one company both at the same time.
at the same time.
 KEY MANAGERIAL PERSONNEL /KMP

Criteria : Listed Company

or

Public company with paid upP share capital of 10 crores or me

more.
Composition of KMPs
1. CEO whether called MD or Manager

2. CFO.

3. CS. any company with paid -up share capital with 5 crores moremust
appoint one.

4 Whole Time Director

5. Such other officer, not more than one level below the directors, who is in whole
time employment.

6. Any such officer as may be prescribed.

Appointment:
1. KMPs are appointed by BOD Resolution on the recommendation of the
Nomination and Remuneration Committee.
wth
2 Company must file DIR 12 and MGT 14 with 30 days of appointment
ROC.

Penalty for Contravention

Company - Fine of 7 5 lakh.
to maximum
Director/KMP -

F 50,000 and 1000/- for every day of default, subject

of 5 lakhs
 DIFFER
BETWEE A MANAGING DIRECTOR AND
WHOLE-TIME DIRECTOR

SNa. Basis Mangaing Director Whole-Time Director

1. Appointment The appointment of a Appointment of a whole-time
Managing Director need not director requires the sanction
necessarily be made with the ofthe share holders by means
consent of the shareholders in of a resolution.
a
meeting. Instead, It can be
made by virtue of an
agreement with the company,
or by virtue of a resolution
passed by the BOD, or by
virtue of a provision in the
Memorandum or Articles.
2. Number of A person can be a
Managing A whole-time director being a
Companies Director of 2 companies. whole-time employee of the
company cannot be a whole-
time director in more than one
3. Powers company.
A ManagingDirector is A Whole Time Director
entrusted with substantial exercises the powers as per
powers of management i.e., the terms of his
discretionary powers to take which need
employment,
not be as wide as
decisions regarding important those of a
policy matters. Managing Director.
4. Manager
A Managing Director cannot A Whole Time Director can
coexist with a Manager. be appointed together with the
Manager.
 DISTINCTION BETW
DISTINCTION WEENNA
BETWEEN MANA GER ANI
A MANAGER
AND
MANAGING DIRECTOR
S. No. Basis
Manager Managing Director
1. Director A Manager may not be
director of a company.
a
| A Managing Director must
be a director.
2. Number There cannot be more than There may be more than one
one Manager in a
company. Managing Director in a
company for example MD,
and Joint MD.
3. Powers The Manageer
has the Managing director has
management of whole or substantial powers of
substantialy whole of the affairs management which would
of the company. Hence his not be otherwise exercisable
powers are wider than those by him.
of a
Managing Director.
4. Method of A Manager may be
appointedd A Managing Director may
Appointment under a contract of service be appointed by (1) virtue
or by
way of a resolution of an agreement with the
passed by shareholders in a company(2) or resolution
general meeting. passed by company in a
general meeting. (3) or by
BOD, or (4) by virture of
Mem-orandum and Articles
of the company.
5. Remuneration
The maximum remuneration Where there than
are more
payable to a Manager can oneManaging Director, the
not exceed 5% of the net maximum remuneration
profits. payable will be limitedto
10% of the net profits.