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Independent directors and their role: A discussion

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Who is an Independent Director?

An Independent Director (“ID”) is a director other than a managing director or a whole-time director or a nominee director, who, in the opinion of the board, is a person of integrity and possesses relevant expertise and experience, not being a promoter of such company of its affiliates, not being a relative of promoters or directors of the company or its affiliates, is an independent director. Such individual cannot have any pecuniary relationship with that company, its promoters, senior management or affiliate companies, during the past two years or the current year. Moreover, the independent director cannot be related to promoters or the senior management and should not have been an executive with the company, partner or executive director of the auditors, lawyers, consultants of the company in preceding three years. It has been witnessed that IDs are rarely chosen based on qualification and/ or experience of the candidate, but mostly through close associates or nomination basis.

 A Databank of Independent Directors

Recently, on October 22nd, 2019, the Ministry of Corporate Affairs (“Ministry”) brought about the Companies (Appointment and Qualification of Director) Fifth Amendment Rules, 2019, Companies (Creation and Maintenance of databank of Independent Directors) Rules, 2019 and Companies (Accounts) Amendment Rules, 2019 (“Rules”) under the Companies Act, 2013 (“Act”). The Rules came into force on December 1, 2019, with exception to Rule 2 and 5 of Companies (Creation and Maintenance of databank of Independent Directors) Rules, 2019. The objective of these Rules is to create a databank of people who are currently serving as ID or plan to serve as ID and, are eligible to be appointed as ID in a company. Such databank will be available on the website of Indian Institute of Corporate Affairs. It must be noted that government has now identified as an institute to make Section 150 of the Act relevant. Further to their registration in the databank, such present and prospective IDs will have to pass an online proficiency self-assessment test which will be conducted by the Institute and such test will examine their capability to act as an ID on the board of company.

Qualification of IDs

In order to qualify for the online proficiency selfassessment test, such IDs must secure atleast 60%, within 12 months from the date of registration in the databank maintained by the Indian Institute of Corporate Affairs. There is no restriction on the number of attempts an individual may take to pass the online proficiency self-assessment test. The only exceptions to the online proficiency selfassessment test are given to individuals who hold minimum experience of ten years as a director or key managerial personnel in a listed public company or in an unlisted public company having a paid-up capital share capital of Rs. 10 crores or more. For the purpose of calculation of the period of 10 (ten) years, any period during which an individual was acting as director or key managerial personnel in two or more than two entities at the same time shall only be counted once. As per Companies (Appointment and Qualification of Director) Fifth Amendment Rules, 2019, every ID is now required to provide a declaration that their respective names are appearing on the database of IICA when they declare their independency as per Section 149(7) of the Act.

What Questions must an ID ask before joining a company’s board

An individual must be very careful before deciding to join a company’s board as an ID, especially without any due diligence. An ID must ask several questions to the management of the company before joining its board along with independent due diligence. Due diligence is a process by which an individual gathers important business information about a target. In this case, the target will be the company a person wishes to join as an ID. Some of the key issues which must be taken care of include – financial position of the company, operational capabilities of the company and most importantly any probable risk which may lead to company engaging in illegal or fraudulent activity. As a part of due diligence exercise, company’s indemnification process and director’s liability insurance must be reviewed in the event any obligation falls on director when there is a litigation against the company. Company’s charter documents and public filings and press releases which are available in the public domain must also be reviewed along with byelaws to get a clear picture of obligations which ID may have to follow. Such scope and qualifications of such documents/policies must be reviewed by a legal professional along with identification of red-flags in the due diligence process so that any gap can be identified on time. A prospective director must carry out his own due diligence process in order to gather maximum information about the Board, their processes and commitments. Additionally, any possible conflict of interest to the company and other board members must be checked because ACT identifies certain eligibility criteria which must be met by an ID. It is also important to know the company’s policy on mitigating risks in case company faces an allegation or has a possible risk of running into a litigation.

Does an ID owe a duty of care & disclosure?

 In all matters affecting company, directors and their fiduciary duties to the company include honesty and good faith as well as the duty of care, duty of loyalty and a duty of disclosure. The duty of care requires the director to perform their duty with the same standard of care that a prudent person would use in order to further the best interest of the company and also exercise good faith, as per the facts and circumstances of that particular company. The duty of loyalty requires that there should be no conflict between duty owed to the company and self-interest of a director. The duty of disclosure requires the director to provide complete and materially accurate information to the company. In such case, the role of ID becomes even more important as he or she has to satisfy himself that such obligations on directors are stringently followed to the maximum extent. A director’s responsibilities and obligations in the event of a potential transaction depends on the facts and circumstances of such transaction. From an economic angle, if a transaction is not that material or only marginally material to the company, the level of involvement and scrutiny facing the board of directors may get lowered down and only the basic business judgment rule will apply in such a case. For instance, where a company’s growth strategy is based on acquisition-based model, the ID should ideally set out the strategy and parameters for potential target acquisitions but leave the completion of the acquisition and transaction largely with the executives and officers.

The law focuses on the process, steps and considerations made by the ID, as opposed to the actual final decision. More expansive that the due diligence process is, the better it becomes for both the company and its stakeholders, and it also provides the protection to the directors in the face of scrutiny or investigation by any authority. Courts will consider facts and evidences like appearance at Board meetings, the number and frequency of such meetings, knowledge of the director on subject matter, time spent in taking decisions, suggestions taken from third-party experts like lawyers, requests for information from the management and requests for and review of documents and contracts by the Board and external experts. In the performance of their obligations and fiduciary responsibilities, an ID may, and should, seek the advice and counsel of third parties, such as attorneys, investment bankers, and valuation experts. Moreover, it is generally a best practice to obtain a third-party expert fairness opinion in any transaction undertaken by the company. Furthermore, most of these experts like corporate lawyers will prepare an opinion in form of due diligence report for such transactions. In addition to added protection to the ID, the fairness opinion is often relied upon by charted accountants and auditors in concluding or certifying the valuations in a merger and acquisition transaction, especially in a case where a related party is involved in the transaction.

Is corporate social responsibility also an ID obligation?

Big companies which fall under certain thresholds are additionally responsible for addressing some of the social issues and some of these issues may also concern economic development, environment and issues impacting public at large. Accordingly, companies must involve themselves in understanding such issues by involving stakeholders and taking their views on corporate social responsibility (“CSR”) issues. CSR is defined under Section 135 of the Act which prescribes involvement of ID in CSR committee. The role of ID in such decisions will enable board and management to make informed decisions and may enhance the business intelligence. Further, better decisions which reduces any business risk, build brand value and help in gaining long term shareholder value will benefit company. A CSR action may work for company in return as it shows responsibility of a business and its contribution to the society. A key part of ID’s responsibility is to ensure that an effective and structured corporate governance has been put in place and followed upon. Such corporate governance structure must also ensure that reasonable financial and growth targets are set, and such targets are achieved along with risk identification and management are carried out parallelly. IDs are responsible for taking into account interests of shareholders, customers, employees, creditors and general public. Due to the position an ID holds, it must also keep Board advised to regular basis, of any interest that could potentially conflict with CSR and in case there is a conflict, as a best practice, such ID or any director possibly in conflict must not receive any relevant documents of that meeting including minutes of meetings and must abstain himself from any discussion in that regard. IDs have an additional role to play as per Section 178(1) of the Act in which they shall be a part of Nomination and Remuneration Committee consisting of three or more non-executive director out of which not less than onehalf shall be IDs.

 Suggestions and Conclusion

Considering the important role of an ID for a better Corporate Governance, the amendment in the rules by the legislature is indeed a welcome move by the Legislature to conduct a screening test to filter out the non-deserving candidature for the position of becoming ID’s and to develop a stout mechanism to handover some of the important decision making of the Company in the hands of more experienced and worthy ones in order to cater to better Corporate Governance.

 However, the author feels that with respect to the qualifications and eligibility criteria to become an ID, amongst all other exemptions, certain additional exemptions may be granted to Professionals like Corporate lawyers, Company Secretary, Chartered Accountant to become ID’s with relevant years of experience in handling corporate governance. Additionally, there may be restrictions with respect to the number of attempts to clear the self assessment test in order to pave in some robust mechanism for the purposes to minimize chances of various governance misadventures by letting the more capable and deserving ones leading from the front on the important decision making.

Ambika Pratiyush Swain is a Managing Associate at L&L Partners Law Offices (Formerly Luthra and Luthra Law Offices) and Siddhant Grover is a mentee at L&L Partners.

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Policy & Politics

Textiles sector poised for a $100 bn export: Vikram Jardosh, MoS for Textiles

Industry should take full advantage full advantage of the global market shifts: Secretary, Ministry of Textiles.

Tarun Nangia

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The Government has set a strong aspirational goal of achieving $100 billion from textiles exports in thenext 5 years and we will remain committed to ensure implementation of all development schemes and bring in many more schemes in pursuit of this aspiration, said Darshana Vikram Jardosh, Minister of State for Textiles, Ministry of Textiles, Government of India.

Government has already announced MITRA scheme to attract new investments and build mega textile parks in the country. Other significant programs including the launch of PLI scheme for achieving manufacturing excellence and RoDTEP for enhancing export competitiveness will help India to position it as a global leader in the sector.

The Minister was speaking at the inauguration of TEXCON: The 13th edition of the International Conference on Textiles & Apparel organized by the Confederation of Indian Industry today. A specialCII-Kearney report was also released on “Creating a competitive advantage for India in the global textiles and apparel industry”. The report covers the entire textile value chain and highlights the imperatives for both government and industry to bring global positioning for the sector.

Speaking on the occasion, Upendra Prasad Singh, Secretary, Ministry of Textiles said that the Government is making all efforts to proactively address the challenges and facilitate the creation of an enabling environment for the growth and development of the Textiles and Apparel sector. “We are capable to meet the domestic as well as the global market demands. I would like to urge the industry to take full advantage of the present global market shifts in establishing the excellence and prominence of India globally.”

Dilip Gaur, Chairman, CII National Committee on Textiles and Apparel & Managing Director, Grasim Industries Limited, Aditya Birla Group said, achieving breakthrough growth in Indian textiles will imply doubling down on multiple areas. The key ones include increasing share in MMF fiber and yarn, become regional leaders in apparel and fabrics and further augmenting India’s position as global home textiles leader. “Government of India has already shown strong commitment to this sector by launching multiple mega schemes in recent times which set a very positive tone for the future and to energize all industry stakeholders to take necessary steps forward in achieving the goals”, he added.

Kulin Lalbhai, Co-Chairman, CII National Committee on Textiles and Apparel & Executive Director, Arvind Ltd said, “The growing sentiment around “China plus one” sourcing is a golden opportunity for Indian textiles to stage a turnaround and gain back its leadership position as a lead exporting economy.” India is much better placed to maximize this opportunity as compared to competitors like Vietnam and Bangladesh because of India’s strategic depth.

Dilip Gaur, Chairman, CII National Committee on Textiles and Apparel & Managing Director, Grasim Industries Limited, Aditya Birla Group said, achieving breakthrough growth in Indian textiles will imply doubling down on multiple areas. The key ones include increasing share in MMF fiber and yarn, become regional leaders in apparel and fabrics.

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Piyush Goyal calls for free trade within rules-based multilateral trading system

We must work to resolve issues posed by Non-Tariff Barriers in international trade: Piyush Goyal.

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The Minister of Commerce and Industries, Consumer Affairs, Food and Public Distribution and Textiles, Piyush Goyaltoday called for free trade within a rules-based multilateral trading system with honesty and transparency as core values. He added that wherever India faces an unfair or unjust treatment, it will take reciprocal action. Shri Goyal also emphasized upon the need for resolution of issues posed by Non- Tariff Barriers in international trade. He was addressing the 54th Convocation of Indian Institute of Foreign Trade in New Delhi today.

Referring to India’s recent achievement of 100 crore vaccines, he said that the milestone was the result a collective effort of 130 crore Indians and a proof of India’s ‘Atmanirbhartha’ and its resolve to leverage its capacities to the best possible extent and to serve the needs of the entire world.

Piyush Goyal said that a convocation is an important ceremony that marks the next step in the journey of the graduates when they grow from ‘acquisition of knowledge’ to ‘application of knowledge’.

He commended IIFT for contributing immensely to India’s external trade since its establishment in 1963. He said that IIFT has been widely recognized for its strong knowledge &resource base and has been consistently ranked amongst theleading business schools in the Asia-Pacific Region.

Underscoring the need for a committed and vibrant leadership in the field of academics in India, Shri Piyush Goyal called for enhancing exposure of our students to the best of technology, foreign law, economics, and international trade. Calling for tie-ups of Indian Universities with institutions of eminence across the world, he asked Indian universities to enter into sustained collaborations with such institutions.

Encouraging academic institutions to engage on a much larger scale with the industry, Shri Goyal asked students to take up internships with both the public sector and private players. Speaking of the opportunities offered by online education, Shri Goyal called for more exploration into online and hybrid modes of education.

Piyush Goyal told the students that they were graduating amidst one of the most disruptive events in the collective memory of our times. He emphasized that in the post-COVID ‘New Normal’, we can no longer play by the old rules. He called for using the disruptive interventions brought about by COVID to reorient our conventional, traditional thinking processes. Offering two cents from his versatile experience in foreign trade, Shri Goyal urged the students to ‘Learn, Unlearn, Relearn and Repeat’.

Piyush Goyal said that despite challenges, India under PM Modi has aimed to convert a crisis into an opportunity for transformation. He said that India is being looked upon as a trusted partner & we are engaging with like-minded nations e.g. EU, UK, Canada, Australia & UAE for early conclusion of FTAs.

Referring to India’s ambitious programmes like the PM GatiShakti National Master Plan for infrastructure and multimodal connectivity, Shri Goyal said that there was a need for planned, focussed efforts to create infrastructure in the country by breaking silos and bringing in synergy. “There is a need to bring in quality and productivity in all we do. A ‘Made in India’ product must be a guarantee to the world”, he added.

Applauding the Prime Minister, Narendra Modi’s visionary leadership, Goyal said that India’s decisive leadership, strong industry, vibrant media and its resolve to uphold the rule of law, had made India a trusted partner to world nations.

Lamenting that India had suffered from several missed opportunities in the past, Shri Goyal expressed the hope that we would now be able to seize every opportunity available to us to grow. “The past is a stepping stone, not a milestone”, he added.

Observing that contemporary India was confident & yet dissatisfied, he said that dissatisfied, confident people are the ones who would change the world. He urged fellow Indians to never settle for less and to work together to make India a global leader.

On the occasion, Shri Goyal presented several awards for excellence to graduating students.

Encouraging academic institutions to engage on a much larger scale with the industry, Shri Goyal asked students to take up internships with both the public sector and private players. Speaking of the opportunities offered by online education, Shri Goyal called for more exploration into online and hybrid modes of education.

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Builder hardware products from India have considerable global demand, says Minister of State for Commerce Som Parkash

Tarun Nangia

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Builder hardware industry is linked to the construction equipment industry where the revenue was valued at US$ 6.5 billion in 2020 and construction market is expected to be the third largest globally by 2025: MSME Secretary B B Swain

India is the 17th largest supplier of builder hardware products and is on its way to fulfil the government ambition to become a global manufacturing hub of builder hardware products.

Builder Hardware is another performer making India as one of the top 20 suppliers with a 1.2 percent share in the world builder hardware export pie, said Som Parkash, Minister of State of Commerce & Industry

While addressing the Builder Hardware Expo, organised by EEPC India, virtually today, the Minister noted that builder hardware products from India have considerable demand across the continents.

Indian builder hardware product is one of the best performing segments in the Indian engineering goods sector which has been the key driver of merchandise exports from the country.

“Builder hardware industry is linked to the construction equipment industry where the revenue was valued at US$ 6.5 billion in 2020 and the construction market is expected to be the third largest globally by 2025,” said Mr B B Swain, Secretary, Ministry of Micro, Small and Medium Enterprises (MSME).

India is the 17th largest supplier of builder hardware products and is on its way to fulfil the government ambition to become a global manufacturing hub of builder hardware products.

Swain stated that EEPC India with more than 60 per cent of its members representing MSME sector took several initiatives even during pandemic to provide global interaction opportunities to small players in the form of webinars and virtual Expos.

“The Government of India has been proactive to ensure that all the benefits of the MSME schemes reach the intended beneficiaries in time,” said Mr Swain.

EEPC India Chairman Mahesh Desai said that the four-day virtual Expo would provide opportunity to the Indian exhibitors to display an array of over 200 domestic builder hardware products to overseas buyers from nine focus regions and trade blocs.

“The buyers would comprise contractors, builders, building engineers, architects, landscape artists, interior designers, consultants and project management professionals,” he said.

Speaking at the Expo, EEPC India Vice Chairman Arun Kumar Garodia said India belongs to the league of leading builder hardware manufacturing and exporting nations.

“The Government of India has now set a National Mission of merchandise exports to reach US$ 400 billion within this fiscal, US$ 500 billion by FY-24 and US$ 1 trillion by FY-28 by making Indian products the only choice for global buyers,” he said.

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MOU SIGNED BETWEEN J&K AND GOVERNMENT OF DUBAI FOR REAL ESTATE DEVELOPMENT, INDUSTRIAL PARKS, SUPER SPECIALITY HOSPITALS

MoU will give UT a big developmental push: Piyush Goyal

Tarun Nangia

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Jammu and Kashmir administration has signed a Memorandum of Understanding (MoU) with the Government of Dubai for real estate development, industrial parks, IT towers, multipurpose towers, logistics, medical college, super specialty hospital and more.

Union Minister for Commerce and Industry Piyush Goyal highlighted the significance of the day and said that with the signing of the MoU with Dubai Government, the world has started to recognize the pace with which Jammu and Kashmir is traversing on the development bandwagon. This MoU gives out a strong signal to the entire world that the way India is transforming into a global power, Jammu & Kashmir is having a significant role in that as well.

This MoU is a milestone after which the investment will pour in from entire globe and is a big developmental push. Different entities from Dubai have shown keen interest in investment. Development has to be aspired on all fronts and we are on track, he added.

Goyal thanked Prime Minister Narendra Modi and Home Minister Shri Amit Shah for their focus and commitment towards the development of UT of Jammu & Kashmir. Recent industrial package of 28,400 Crore rupees is a testimony towards ensured development.

Terming it a momentous occasion for the UT of Jammu and Kashmir, Jammu and Kashmir Lieutenant Governor Shri Manoj Sinha said that this development journey will help the Union Territory to scale new heights in Industrialization and sustainable growth.

Union Minister for Commerce and Industry Piyush Goyal highlighted the significance of the day and said that with the signing of the MoU with Dubai Government, the world has started to recognize the pace with which Jammu and Kashmir is traversing on the development bandwagon.

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Policy & Politics

India is working towards bridging digital divide in Africa: V. Muraleedharan

‘India has adopted an approach that facilitates development of human capital in the continent with the larger objective of harnessing socio-economic growth,’ said V. Muraleedharan, Minister of State for External Affairs & Parliamentary Affairs, Government of India

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‘India is working towards bridging digital divide in Africa and has adopted an approach that facilitates development of human capital in the continent with the larger objective of harnessing socio-economic growth”, mentioned V Muraleedharan, Hon’ble Minister of State for External Affairs & Parliamentary Affairs, Government of India while addressing the Inaugural Session at the 2nd edition of the India Africa Higher Education and Skill Development Summit organised by Confederation of Indian Industry in partnership with Ministry of External Affairs, Government of India today.

Muraleedharan elucidated that India is best positioned to partner Africa as we can offer affordable and high-quality education and skill development opportunities and make the young population employable and allow them to participate in growing economies of African countries. Elucidating on the strong Indo-African partnership in the domain of higher education and skill development, the Minister stated that capacity building and providing higher education opportunities with for the socio-economic development of our partner nations is a major element of our Foreign Policy.

India has long standing ties in education with Africa and over 2000 Indian faculty members have been involved in teaching and research activities of Ethiopian nations. Further, defence academies and colleges are being set up in nations like Nigeria and Tanzania. With a view to promote students from African nations to study in India, several initiatives have been undertaken like the Study in INDIA, ITEC programmes, Sir C V Raman Scholarship, collaboration of Department of Science & Technology with the World Bank to develop centres of excellence in African countries and the launch of e-VidyaBharti and e-ArogyaBharti Project, among others.

Dr Sarah Ruto, Chief Administrative Secretary, Ministry of Education Republic of Kenya, emphasised that Kenya is working towards the implementation of the 2030 Agenda of Sustainable Development Goals with a special focus on select education-based SDG Goals. She mentioned that Kenya has a competency-based curriculum to meet the rising demands for tertiary education and there is focus on alumni network funding as well as partnerships to promote skill development.

Buti Kgwaridi Manamela, Deputy Minister of Higher Education, Science & Innovation, Government of Republic of South Africa informed that a bilateral cooperation treaty is being negotiated in education for exchange of students as well as to share best practices. He added that forums like IBSA and BRICS have also provided opportunities to address the developmental needs of the nations.

Dame Diop, Minister of Employment, Vocational Training, Apprenticeship and Inclusion, Government of Republic of Senegal informed that the Plan for an Emerging Senegal (PES) which harmonises national policies particularly for human capital development and vocational training is a major step towards promoting employability. The Minister commended India for committing 130 million Rupees to Senegal to create science and technology institutes.

Dr Douglas Letsholathebe, Minister of Tertiary Education, Research, Science and Technology, Government of Republic of Botswana highlighted that the commonality of English language based higher education system offers scope for greater cooperation between the countries. The Minister stated that the Botswana Vision 2036 aims at transformation from a resource-based to an all-ingredient knowledge-based economy focussing on education, training, and human resource development systems. Expressing the commitment to the youth, Botswana has joined the Generation Unlimited initiative as a leader thereby, playing a crucial role in forging multisector partnerships across geographies to provide greater access to skilling and livelihood opportunities.

S Kuppuswamy, Co-Chair, CII Africa Committee & Advisor-Group Finance & Special Projects, Shapoorji Pallonji Group, said that the Indo-African collaboration has strengthened in the post pandemic era as the nations are collectively focusing on new age learning models and enhancing the role of technology in education. Emphasizing on the strong multilateral cooperation with Africa, it was highlighted that one of the most popular programs, the Study in India commonly called EDCIL offered by Ministry of Education offers around 900 scholarships to African students to study in India and Indian universities are also investing in promoting their services to the African community.

The two day Summit organised in partnership with Ministry of External Affairs, Government of India will focus on Online education, Study in India and Skills Development programmes. Over 6 ministers from Africa and India participated at the Summit and event saw online registration of 600 delegates from India and Africa.

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Policy & Politics

INDEX NUMBERS OF WHOLESALE PRICE IN INDIA FOR THE MONTH OF SEPTEMBER, 2021(BASE YEAR: 2011-12)

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Note: P: Provisional, F: Final, * Annual rate of WPI inflation calculated over the corresponding month of previous year

The month over month change in WPI index for the month of September, 2021 (as compared to August, 2021) was 0.07 %. The monthly change in WPI index for last six-month is summarized below:

Annex-I

All India Wholesale Price Indices and Rates of Inflation (Base Year: 2011-12=100) for September, 2021

Annex-II

Note: * = Provisional, Mf/o = Manufacture of

Note: * = Provisional, Mf/o = Manufacture of

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