NAME- SANJIB BANERJEE

M.COM (2nd SEMESTER)

KAZI NAZRUL UNIVERSITY

PRESENTAT ION ON- INDEPENDENT DIRECTORS AS PER COMPANY

ACT-2013& SOME DISCUSSION ON EFFECTIVENESS OF

COMPANY ACT IN

CORPORATE GOVERNANCE & BUSINESS ETHICS

FROM WHERE THE COMPANY ACT-2013 CAME INTO EXISTANCE? (HISTORY OF CA-2013)• The 1956 Act has been in need of a substantial revamp

for quite some time now, to make it more contemporary and relevant to corporate, regulators and other stakeholders in India.

• While several unsuccessful attempts have been made in the past to revise the existing 1956 Act, there have been quite a few changes in the administrative portion of the 1956 Act. The most recent attempt to revise the 1956 Act was the Companies Bill, 2009 which was introduced in the Lok Sabha, one of the two Houses of Parliament of India, on 3 August 2009. This Companies Bill, 2009 was referred to the Parliamentary Standing Committee on Finance, which submitted its report on 31 August 2010 and was withdrawn after the introduction of the Companies Bill, 2011.

CONTINUE..

• The Companies Bill, 2011 was also considered by the Parliamentary Standing Committee on Finance which submitted its report on 26 June 2012. Subsequently, the Bill was considered and approved by the Lok Sabha on 18 December 2012 as the Companies Bill, 2012 (the Bill). The Bill was then considered and approved by the Rajya Sabha too on 8 August 2013. It received the President’s assent on 29 August 2013 and has now become the Companies Act, 2013.

A short discussion

WHAT IS THE BASIC NECESSITY OF CHANGE IN COMPANY ACT??

• The term’ Independent Director’ has now been defined in the 2013 Act, along with several new requirements relating to their appointment, role and responsibilities. Further some of these requirements are not in line with the corresponding requirements under the equity listing agreement [section 2(47), 149(5) of 2013 Act].

• Independence means free from outside control, not subject to another’s authority. A man is said to be free if he is free from obligations. Similarly in the limelight of Corporate Governance Independent Directors are said to be free if they are free from the control of the management. Independence from Management is a vital factor for considering a director to be independent. This concept of Independence of Directors is recognized now globally as it is felt by the corporate experts and legislators after a spate of scandals, that it improves Corporate Governance.

DEFINITION OF INDEPENDENT DIRECTOR UNDER COMPANY ACT -2013 :-

• ► Maximum number of directors raised to 15 from 12• ► Can be enhanced by special resolution without Central Government approval• ► Atleast one director to be a resident director• ► Atleast one women director by the prescribed class of Companies as stated in the rules• ► Every listed company within 1 year from commencement of the proviso• ► Every other company with paid up capital of Rs 100 cr or more within 3 years from

commencement of• the proviso• ► Atleast one third of the board to comprise of Independent Director by• ► Listed company ,• ► Public Company having• ► Turnover >= Rs 300 crore or• ► Paid up share capital of >= Rs100 crore or• ► O/s Loans / Borrowings / Deposits / Debentures > Rs 200 crore

SOME KEY CHANGES IN ‘INDEPENDENT DIRECTOR’ UNDER COMPANY ACT -2013 :-

An ID cannot be Independence if (as per Section 149(6)):-• ► Present or past Promoter of Company/Holding/Subsidiary/Associate• ► Relative of promoter or director in the

Company/Holding/Subsidiary/Associate• ► Pecuniary relationship with Company / Holding / Subsidiary /

Associate or their promoter/directors in last 2 years and current year• ► Relative who has pecuniary relationship/transaction with Company /

Holding /Subsidiary / Associate or their promoter/directors >=2% of gross turnover / Rs. 50lakhs (whichever is lower) in last 2 years or current year

• ► Neither he nor his relatives is KMP in the company - or employee of Company/Holding/Subsidiary/Associate in last 3 years

SOME KEY CHANGES IN ‘INDEPENDENT DIRECTOR’ UNDER COMPANY ACT -2013 :-

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• ► Neither he nor his relative is employee/proprietor/partner in last 3 years in firm of auditors/company secretary in practice or cost auditor of Company/Holding/Subsidiary/Associate

• ► Neither he nor his relative is employee/proprietor/partner in last 3 years in legal or consultancy firm having transaction >=10% of gross turnover of such firm

• ► A person who together with his relatives hold >=2% of voting power of the company

• ► Nominee Director/Whole-time director

SOME KEY CHANGES IN ‘INDEPENDENT DIRECTOR’ UNDER COMPANY ACT -2013 :-

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Remuneration OF ID [Section-149(9)]:-

► Not be entitled to any stock options

► Sitting Fees max of Rs 1 lakh per meeting, reimbursement of expenses

► Profit related commission as approved by BOD subject to limits

TENURE [Section 149(10) and (11)] :-

• ► Term of 5 Consecutive years; Can be extended for further 5 years by special resolution;

• ► Re-appointment only after a cooling period of 3 years• ► Applies prospectively, i.e. current term will not be

counted• ► Not liable for rotation- Sec 149(6)

MANNER OF APPOINTMENT OF ID:-

• The appointment of Independent Directors of the company shall be approved at the meeting of the share holders. In the Annual General Meeting (A.G.M) a notice must be served for approving the appointment of independent directors and such notice shall include a statement in the opinion of the Board, that the independent director proposed to be appointed fulfills the conditions specified in the Act.

CONCLUSION:-• The Satyam affair and other scandals abroad exposed the growing need

to ascertain precisely the standards for determining the liability of independent directors for prevention and detection of fraud, in view of the limited roles performed by them in the company. These scandals taught the legislators and corporate experts in India and abroad a costly lesson which propelled them to take adequate measures.

• As regards India, the legislators after such collapses enacted the new act which makes a considerable effort to bring the role of independent director in line with the changing needs of the economy. The primary objective behind the new act's provision on independent directors is to ensure transparency and independence and at the same time to bring value to the company by providing input on strategy, business, marketing, legal, compliance and other matters including performance of monitoring functions.

THANK YOU

MY RESPECTED TEACHERS&

MY FRIENDS