(CHAPTER-3)

(Independent Director, Woman Director & Corporate Governance)

The Companies Act, 1956 does not provide us the specific definition of an Independent Director,
Woman Director and position of director under the Corporate Governance. Companies Act
2013, in the Chapter of XI has introduced Companies (Appointment and Qualification of
Directors) Rules 2014 specifies regulatory prescriptions relating to appointment of directors,
directors identification number, disqualification, vacation etc.
The Act has brought in many new provisions such as appointment of women director, resident
director, independent director by certain class of companies act and “The Role of the Board of
Directors in Corporate Governance” has been familiarized by the Companies Act 2013 .
INDEPENDENT DIRECTOR
INTRODUCTION
Independent directors are meant to assist the company's shareholders. They never try to represent
themselves as a regulator watch dog. The Companies Act 2013 has introduced new provisions
relating to independent directors, eligibility criteria, tenure, appointment, qualification; code etc.

Independent Directors are necessary because they perform the following important functions :-
(i) They balance the conflicting interest of stakeholders.
(ii) They satisfy a useful role in succession planning.
(iii) They act as a coach, mentor for their full time colleagues.

(iv) They provide independent judgment and wider perspective.

An independent director (also sometimes known as an outside director) is a non-executive

director of a company and helps the company in improving corporate credibility and governance
standards. The institution of independent directors is a very important instrument for
safeguarding good corporate governance and it is necessary that the functioning of the institution
is critically analyzed and proper safeguards are made to ensure efficacy.

BACKGROUND

The Cadbury Committee in 19921, which itself was set up following the corporate scandals
involving BCCI, Poly Peck and Maxwell, provided respectability to the concept of independent
directors, by focusing on independent directors as a measure of the new applies for better
governance. They are anticipated to be more alert and question the company on appropriate
issues in their position as trustees of stakeholders.

EVOLUTION OF THE CONCEPT OF INDEPENDENT DIRECTORS IN INDIA:-

The concept of “Independent Director” was first introduced in the Indian corporate field through
the Kumar Manglam Birla Committee, formulated by SEBI, to start up reforms in the area of
Corporate Governance. The Birla Report stipulated, “Independent Directors are directors who
apart from receiving directors’ remuneration do not have any other material pecuniary
relationship or transactions with company, its promoters, its management or its subsidiaries,
which in the judgement of the board may affect their independence of judgement”. Thereafter
The Irani Committee came up with several recommendations in relation to the independent
director that were in conflict with the Clause 49. Finally in the case of Central Government
Vs. Sterling Holiday Resorts (India) Ltd, AIR 2005, decided that “the Board of directors
should be strengthened by appointing independent directors”.