This article was written by Zehra Jamal. The article deals with multidimensional aspects of becoming an independent director in India, including but not limited to who are independent directors, what are their liabilities and duties, their relevant statutes, their appointment procedures, their examination and scope, eligibility, syllabus, books to follow, tips and tricks to qualify the exam, etc. The article tries to convey to its reader the maximum details presented in the best possible way about becoming an independent director in India.

It has been published by Rachit Garg.

Introduction

What are your thoughts on the daily workings of a company, and how do you think an organisation like a company works? We all understand that since a company is an artificial person, it cannot perform and execute its daily functions. Thus, the directors are required to perform all such actions on behalf of the company. Thus, every company has a team of directors (based on the requirements of the company), also known as the board of directors, which acts on behalf of the company to ensure the smooth functioning of the company. The board of directors makes all the decisions for the functioning of the company and ensures that such decisions are put into action. They act as the trustee and guardian of the company and control all the important and major decisions of the company. Thus, simply put, we can say that the directors are individuals liable for managing the daily affairs of a company. They are trained professionals in a company who are hired to control the day-to-day operations of the company. They are the key managerial personnel of the company. As the name itself suggests, the key managerial personnel of a company are those employees who are entrusted with the most important managerial functions of the company.

Since the independent directors are the key managerial personnel holding the most important post in a company, they must also be governed through proper statutes. Thus, they are governed by the Companies Act, 2013. There are different kinds of companies defined under the Companies Act of 2013, and the requirement for such directors depends on the type of company. The Act bifurcates directors into various types based on their functions performed or on their appointment, etc., and puts forth the duties and liabilities of a director as well. It also discusses the various functions that are to be performed by the director of the company. The provisions of the Act help in deciphering the entire role of directors in the company. 

This article focuses on becoming an independent director in India, and thus we will be focusing more on topics related to independent directors. Independent directors are appointed based on functions performed by them, and they are non-executive directors of a company. To become an independent director in India, individuals need to get themselves registered on the Independent Directors Data Bank and clear the Independent Directors Online Proficiency Self-Assessment Test. After successfully clearing the test, the individuals are appointed by the company as independent directors to look after the functioning of the company. 

The article discusses the independent directors and the career aspects of becoming independent directors in India, including how they are appointed, their roles, duties, functions and liabilities, how they are governed, relevant statutes, their appointment procedures, etc., in a detailed manner. It tries to answer the queries and doubts of any individual who is either looking for details on becoming an independent director in India or exploring the field. 

Who are independent directors

The term ‘director’ has been defined under the definition clause of the Companies Act, 2013. According to Section 2(34) of the Act, directors are natural persons who give directions to the company, and they are appointed by the same company. Independent directors are also a type of director defined under Section 149(6) of the Act.  

Independent directors are appointed based on functions performed by the directors in a company. Two basic types of directors are appointed based on functions performed in a company: executive directors and non-executive directors. The executive directors are all-time directors of the company, managing the daily affairs of the company, while the non-executive directors are not directly involved in the day-to-day functioning of the company but take care of matters about strategizing goals, raising funds, etc. The definition of executive director is not specified in any law, statute, guidelines, rules, etc., so there isn’t a precise definition for it. The non-executive directors are further classified into the following two types:

• Nominee directors: A nominee director in a company is a person who is appointed to the board of directors by another person. Usually, such directors can be appointed by shareholders of a company (specific class), third parties through contracts, financial institutions, etc. However, if there is a case of oppression and mismanagement, the union government can also appoint a nominee director.       
• Independent directors: Independent directors are the non-executive directors of a company. They do not have any direct relations (which might affect the decision-making of the director) with the day-to-day affairs of a company. They are more focused on helping a company improve its corporate credibility and growth.                                                                                                                                                                 

According to the Ministry of Corporate Affairs, a company, while appointing an individual as an independent director, must consider the credibility, relevance, expertise, and integrity of the individual. 

For a company to compulsorily appoint two independent directors, the following minimum criteria should be fulfilled as per Section 149 of the Act: 

1. The company should be a public company and must have a turnover of either Rs. 100 crores or more than that.
2. The company should be a public company and must have a paid-up capital of either Rs. 10 crores or more. 
3. The company should be a public company and must have a total debenture or deposit of either Rs. 50 crores or more.

Relevant provisions concerning independent directors 

Statutory provisions

Though there are many provisions concerning independent directors in the Companies Act, 2013, we will be discussing only the important ones. The following are the important statutory provisions concerning the independent director of a company:

Section 149 of the Companies Act, 2013

• Every company should have a board of directors, which should consist of individuals as directors. It also specifies that:

• There should be a minimum of one director in a one-person company, two directors in a private company and three directors in a company
• The maximum number of directors a company can appoint should not be more than 15

However, the Section gives a company the liberty to appoint more than 15 directors by passing a special resolution. The proviso to the Section also states that such companies, as may be prescribed, shall have at least one woman director.

• Every listed public company shall have at least one-third of its directors as independent directors, and it also gives liberty to the central government to prescribe the minimum number of independent directors for certain classes of companies.
• An independent director of a company is any director other than a managing director, a whole-time director, or a nominee director of the company. It also specifies that companies should appoint such a person as an independent director who, in the opinion of the board of directors,  is a person of integrity and has the requisite skills to occupy the post. The individual should also not be a promoter of the company and should not have any direct relations with the promoter or directors of the company. 
• Every independent director so appointed shall prove his competence by giving a declaration that he meets the requisite criteria to occupy the post in the very first meeting after his appointment and in the very first meeting of every financial year. 
• Every independent director so appointed shall follow the guidelines given in Schedule IV of the Act.
• Notwithstanding any other provisions of the Act, but concerning provisions of Section 197 and Section 198 of the Act, the independent director shall be entitled to his fees concerning Section 197(5) and reimbursement of expenses for participation in the Board and other meetings and profit related commissions as may be approved by the members, etc. 
• The tenure of an independent director is five consecutive years, subject to provisions of Section 152 of the act. It also states that they are eligible for reappointment, subject to the passing of a special resolution by the company and disclosure of the same in the board’s report.
• Notwithstanding clause 10, no individual shall be appointed as an independent director for more than two consecutive terms. However, they shall be reappointed after three years of their second tenure as independent directors. 

The proviso, however, states that during those three years, the individual shall not be either appointed or associated with the company. 

• Section 149(12) makes the independent director of the company only liable for those acts that occurred without his knowledge. 
• The provisions of sub-sections (6) and (7) of Section 152 shall not be applicable to the appointment of independent directors in a company. 

Section 150 of the Companies Act, 2013

Section 150 states about the selection of independent directors and the maintenance of the data bank of independent directors.

Subject to Section 149(6) of the Act, every independent director may be appointed from the data bank of independent directors, which contains details of the individuals who are eligible and willing to be appointed as independent directors. 

The proviso to the Section makes it the duty of the company to exercise due diligence while appointing an independent director from the data bank. 

Such appointment of the independent director by the company shall be approved by the company in its general meeting. It also specifies that the explanatory statement annexed to the notice of the general meeting should justify the appointment of such an individual as the independent director of the company. 

The data bank should have a list of individuals willing and qualified to be appointed as independent directors and should be made by the prescribed rules.

The manner and procedure for the selection of independent directors vest with the central government. 

Courts ruling

Mr. Satvinder Jeet Singh Sodhi and Mr. Sakti Kumar Banerjee vs State of Maharashtra and Anr. (2022)

In this case, the Hon’ble Bombay High Court, while deciding the liability of non-executive directors, held that since the non-executive directors of a company are not involved in the day-to-day functioning of the company, they cannot be liable for bouncing of cheques under Section 138 of the Negotiable Instruments Act, 1881, and thus, no criminal proceedings can be initiated against them.

What are the duties of an independent director 

The duties of an independent director are prescribed in the code of conduct under Schedule IV of the Companies Act, 2013. It includes, but is not limited to, the following:

• Help the board of directors come up with an independent judgement, calculating the pros and cons of the issues at hand

An independent director of the company must make efforts to attend all the board meetings of the company and must also strive to attend all the general meetings of the company and all other board committee meetings in which he or she is a member, and during those meetings, the independent director must put forth his independent judgement based on his best application of mind and help the other stakeholders of the meeting arrive at a decision that is in the best interest of the company. 

• Help the board decide and come up with a strategy to increase the growth, performance, relations, etc. of the company

Independent directors should strive to maximise the overall performance of the company, and for the same, they can seek expert advice and clarification on issues that are within their domain. If the need arises, the independent director should also give instructions and advice to the required people to act in the requisite manner. All these things should be done by the independent director at the expense of the company. However, in doing so, the independent director of a company should always act within the scope of his authority, and he or she is also expected not to unfairly obstruct the functioning of the company. 

• Help the board to protect the interest of all the stakeholders in the company and also to maintain a balance between the conflict of interest of all the stakeholders, especially the minority stakeholders

The independent director of a company is entrusted with maintaining the overall environment and relations of the company, and it is expected of the independent director to have an updated and overall view about the interests of all the parties and to keep an eye on those interests so that they are not compromised, especially the interests of the minority shareholders in the company. If the independent director comes across any such instance where the interests of any party of the company are being compromised, then the independent director must raise that point with the board of directors and try his or her best to resolve it. However, if, even after trying, it doesn’t get resolved, the independent director must note that the same gets recorded in the minutes of the meeting of the company.

• The independent director of the company is also equipped with the duty of looking after the professional ethics and behaviour of the employees of the company.

The independent director of a company should look out for suspected or actual fraud and violations of the professional ethics of the company. The independent director should also ensure that if any individual or a party acts in violation of the code of ethics or professional morality, then the independent director of the company must report such acts of the party to the concerned authority for further deliberation on the issue. 

• Help the board evaluate the performance of the various stakeholders of the company on the basis of the objectives and goals of the company and set up new prospective growth targets

The individual director of a company is expected to be updated with the overall functioning and the outside environment of the company, and the independent director is also entrusted with the overall growth of the company. For the same, they are also entrusted to regularly check and test the skills of the employees, and they are also empowered to take on new inductions to join other employees who have more familiar skills essential to the company. Apart from this, the independent director is also expected to ensure that the overall human resource required by the company for its day to day functioning does not get short at any time and that the same is updated at regular intervals. 

• The independent director of the company should also make the best possible efforts to maintain a risk free and robust financial mechanism for the company. 

The independent director of the company must ensure that the company has an acceptable and proper financial system. The independent director also has to ensure that any individual or party that uses the mechanisms of the company doesn’t get prejudiced by using them. Also, the independent director must ensure that every transaction that happens through the company to an individual or any other party is firstly discussed, deliberated, and approved within the general meetings of the company and that such transactions are in the interest of all the stakeholders of the company. 

• The independent director of the company should also make the best possible efforts to maintain the secrecy of the requisite things during his tenure as an independent director. 

It is the responsibility of the independent director of the company to maintain the confidentiality and secrecy of technologies used by companies, strategies followed by the company, the growth plan adopted by the company, the public relations strategy admitted by the company, the advertising plan of the company, unpublished secretive and other documents of the company. The independent  director of a company is allowed to disclose such sensitive information about the company, only when one or both of the following situations are present:

1. Such disclosure by the independent director of the company is expressly approved by the board of directors of the company 
2. Such disclosure by the independent director of the company is required by the law of the land

Which companies need to appoint independent directors 

The following types of companies are required to appoint independent directors:

Listed company

Section 2(52) of the Companies Act, 2013 defines a listed company as any company whose securities are listed on any of the recognised stock exchanges and whose shares are open for trading in the market. Out of the total directors of a listed company, not less than one third should be independent directors. 

Public company 

A public company should compulsorily appoint two independent directors, and for the public company to compulsorily appoint two independent directors, the criteria given under Section 149 of the Companies Act, 2013 should be fulfilled. Those criteria are already discussed above and hence are not mentioned again for the sake of brevity. 

Examination for becoming an independent director  in India

In order to become eligible for becoming an independent director in India, an individual has to register themselves on the independent director data bank and has to clear the  independent director online proficiency self assessment test within a year after registration, or their name will be removed from the independent director data bank. Let us have a look at the nuances of the independent director online proficiency self assessment test.

Independent director online proficiency self assessment test

The independent director online proficiency self assessment test is conducted by the Indian Institute of Corporate Affairs under the provisions of Section 150(1) of the Companies Act, 2013. The independent director online proficiency self assessment test will be conducted through the independent director data bank as provided under Rule 6(1) of the Companies (Appointment and Qualification of Directors) Rules, 2014. 

The slots for the independent director online proficiency self assessment test are available now, and an individual can take the test on any day of the week in any of the following three time slots:

• Morning slot – 8 am to 9 am
• Afternoon slot – 2 pm to 3 pm
• Late evening slot – 8 pm to 9 pm 

In order to get familiar with the exam, mock tests are also available on the independent director data bank’s website. The candidates who are willing to give a mock test can attempt the same.  

Paper pattern of the independent director online proficiency self assessment test

The independent director online proficiency self assessment test will be based on the knowledge of a candidate in the areas of company law, securities law, basic accounting and corporate governance.

The independent director online proficiency self assessment test consists of a total of 50 multiple choice questions and 100 marks, which will further be divided into the following two categories:

• Questions on board essentials – 25 multiple choice questions of direct type
• Questions on board practices – 25 multiple choice questions based on scenario

The time limit for the candidate to attempt the above questions will be a total of seventy five (75) minutes. 

The marking scheme for the independent director online proficiency self assessment test

The independent director online proficiency self assessment test consists of a total of 50 questions. Each correct question will award the candidates two marks. There is no criteria for negative marking, and therefore, each wrong answer will award zero marks to the candidates. The time limit for the exam is seventy five (75) minutes, which implies that the average time allotted to each question will be around 1.5 minutes. 

Important points to note for the independent director online proficiency self-assessment test

The following points are to be kept in mind by the candidate attempting the independent director online proficiency self assessment test:

1. In order to take the independent director online proficiency self assessment test, the candidate must register themselves on the independent director data bank.
2. After registering on the independent director data bank, the candidate must qualify the independent director online proficiency self assessment test in a span of two years, or their name will be removed from the independent director data bank. 
3. Any candidate who has given the independent director online proficiency self assessment test and has an aggregate score of not less than 50 percent will be deemed to be qualified for the examination.
4. There is no limit on the maximum number of attempts a candidate can make for the exam; however, there must be a gap of one day between the slots in which the candidate attempts the exam. 

How to give the independent director’s online proficiency self-assessment test

In order to give the independent director online proficiency self assessment test, the candidate should follow the following steps:

1. Register on the independent director data bank.
2. Login to the independent director data bank.
3. Go to the dashboard.
4. Select the time slot in which you want to attempt the independent director online proficiency self assessment test.
5. Attempt the independent director online proficiency self assessment test as per the slot you have booked.
6. After attempting the independent director online proficiency self assessment test, the test result and report will be displayed on your portal. 

Tabular representation of the exam 

Name of the exam	Online Proficiency Self Assessment Test
Name of the conducting body	The Indian Institute of Corporate Affairs (IICA)
Website of the conducting body	https://iica.nic.in/
Website of the exam	https://www.independentdirectorsdatabank.in/self_assessment
Total number of questions in the exams	50 questions
Time allotted to the exam	75 minutes
Marks awarded for the correct question	2 marks
Marks awarded on the wrong question	0 marks
Types of questions	Multiple choice questions
Frequency of the exam	Unlimited
Time slot of the exam	– 8 am to 9 am- 2 pm to 3 pm- 8 pm to 9 pm
No. of attempts	Unlimited

Individuals who do not require passing the independent director online proficiency self assessment test

The following individuals are not required to pass the independent director online proficiency self assessment test in order to be appointed as an independent director:

1. Any person who currently is, or has been, any of the following for at least ten years:

1. A practising chartered accountant, or
2. A practising cost accountant, or
3. A practising advocate of a court, or 
4. A practising company secretary

      (2) Any person who currently is, or has been, any of the following for not less than three   years on the date of inclusion of his name in the independent director data bank

1. A key managerial personnel or a director, in at least any one of the following:

(i) a listed public company;

(ii) an unlisted public company having a paid up share capital of Rupees 10 crores or more;

(iii) any body corporate which has been incorporated outside india and has a paid-up share capital of US$ 2 million or more;

(iv) any body corporate listed on any stock exchange;

(v) any statutory corporation set up in India;

     (b) Any individual working in any ministry of department of any state or central government of India and having a pay scale of director or its equivalent, with an experience in the field of corporate affairs, commerce, etc.     

How to become an independent director in India

In order to become an independent director, one must possess extraordinary knowledge and experience, a balance of skills, and an understanding of the post. An independent director’s name is suggested by the board of directors. The same has also to be upvoted by the shareholders of the company. 

To  become an independent director, the individual needs to register on the independent director data bank and pass the independent director self proficiency online assessment test. The procedure to become an independent director is the same for both types of companies – public companies and listed companies.  

Minimum qualifications required to become an independent director in India

There is not a very specific set of guidelines and qualifications issued by any authority on the minimum qualifications or eligibility criteria to become an independent director. However, in order to be eligible to be appointed as an independent director by a company, individuals should fulfil the following basic criteria:

• The individual should at least know the nuances of the law and other associated regulations to help the company grow.

In order to be eligible to become an independent director, basic legal knowledge with respect to the subject of company laws is expected to be a must. It also forms part of the syllabus of the candidate to clear the independent director online proficiency self assessment test, and thus it is necessary for the candidate to have knowledge of the same. 

• The individual must also be financially literate and be a person of integrity with the requisite skills in order to be eligible for the same. 

Another important requisite for a candidate to be eligible for becoming an independent director is that they must also be financially literate so that they can calculate the growth, projections, shares, etc. of the company.

• The individual should also have passed the independent director online proficiency self assessment test within two years from the date of their registration on the independent director data bank. 

Apart from these, there are no such specific qualifications for being an independent director, and anybody who is interested can register themselves on the Independent Director Data Bank. They will be appointed as independent directors if they clear the independent director online proficiency self assessment test.  

Benefits of the graduation subjects or graduation field of a candidate to help the candidate clear the independent director online proficiency self assessment test

There is no compulsion on any particular subject for the candidate to be eligible to be appointed as an independent director. However, there are a few subjects and graduation fields which help the candidate get a grasp of basic concepts related to the independent director online proficiency self assessment test, thereby giving them a benefit over students from other backgrounds. The following few backgrounds do give the candidates an edge over the other candidates in clearing the independent director online proficiency self assessment test. Let us discuss the same. 

Legal background

If a candidate has done their graduation with law and is from a law background, it will help the candidate in clearing the independent director online proficiency self assessment test as the major portions of the syllabus include company law, securities law, and corporate governance, all of which are an integral part of the law school journey. All of these subjects give the candidate an edge over other candidates who are not from a legal background.

Commerce background

If a candidate is from a commerce background, it will help the candidate in clearing the independent director online proficiency self assessment test as the syllabus includes basic accounting, which is an integral part of the commerce background. It will also give him leverage over students from other backgrounds because it will take time for other students to get a grasp on the subject as compared to the student who has already studied it. 

CA and CS professionals 

The chartered accountant and company secretary have not only relevant expertise in the field, but they have also studied the syllabus  of the independent director online proficiency self assessment test while clearing their chartered accountant or company secretary papers. It is because the syllabus to clear the CA includes commerce subjects like business, accountancy, etc., which form part of the independent director online proficiency self assessment test. Also, the syllabus of the CS includes company laws, securities laws, basic accountancy and numeracy, etc., which also forms the syllabus of the independent director online proficiency self assessment test and hence gives them an edge over other candidates. 

Independent director data bank 

The independent director data banks are set up under the Companies (Appointment and Qualification of Directors) Rules 2014. Let us have a look at the details of the independent director data bank.

How are the independent director data bank set up

The Companies (Appointment and Qualification of Directors) Rules, 2014 states that any institute or any corporation can set up an independent director data bank with the approval of the central government. After the notification of the government of India, the independent director data bank was set up by the ministry of company affairs along with the Indian Institute of Corporate Affairs (IICA). The independent director data bank was set up under the provisions of Section 150 of the Companies Act, 2013.

Services of independent director data bank

The independent director data bank plays a very vital role for companies by helping them in the appointment of an independent director. The three very important services that are provided by the independent director data bank are as follows:

• Registration of individuals who are willing to become independent director 

The independent director data bank allows individuals to register themselves on its portal. It therefore creates a database for all the individuals who are willing to become independent directors. The link for the independent director data bank can be accessed here.

• Independent director online proficiency self assessment test

The independent director data bank is also equipped with the task of conducting the independent director online proficiency self assessment test. It acts as a platform to help the Indian Institute of Corporate Affairs (IICA) with the examination.

• Online courses for independent directors 

The independent director data bank also acts as a medium of knowledge for those individuals who want to learn about being an independent director. The courses also help the individual with the independent director online proficiency self assessment test. Candidates can also take mock tests on the platform, apart from learning from the online courses.

Information of the independent directors available on the independent director data bank

The independent director data bank, which acts as a collection of data about the people interested in being independent directors, contains the following information about the individuals: 

1. Full name (name, middle name, surname) of the individual; 
2. Director Identification Number of the individual (DIN);
3. Name of the father of the individual;
4. Gender of the individual;
5. Nationality of the individual;
6. Date of birth of the individual;
7. Phone number of the individual;
8. Full residential address of the individual along with the pin code (both permanent and present addresses); 
9. Email address of the individual;
10. Occupation of the individual;
11. Experience and expertise of the individual;
12. Any legal proceedings against the individuals;
13. Educational qualification of the individual;
14. List of limited liability partnerships in which the individual was a designated partner.

What is the Director Identification Number (DIN)

The Director Identification Number (DIN) is a unique number that is given to any person who is appointed as a director or any person who intends to be the director of any company. The Director Identification Number is allotted to an individual by the central government. It is an eight (8) digit number that is unique for everyone. The Director Identification Number (DIN) is used by any company to get the details of any director. The number (DIN) doesn’t expire and has a lifetime validity. 

Benefits of becoming an independent director in India

The benefits and scope of becoming an independent director in India are very wide. The world of an independent director gives you huge opportunities. Not only does the position of an independent director pay a very large remuneration, but it also gives great marketing and networking opportunities. 

It also helps you gain recognition and prestige in the market. Usually, the companies that appoint independent directors are always covered in the media, and once an individual is appointed as the independent director, that individual also starts getting fame, recognition, etc. Firstly, the appointment of the candidate as an independent director itself is covered by the media, followed by all the major decisions taken by the independent director and all the important meetings attended by the independent directors, thereby ensuring lots of recognition, which in essence will open more doors for the individual. 

Not only this, but the post of independent director brings much power to an individual as well. They can make various decisions about the company and its functioning, etc., and thereby make a positive impact on overall corporate strategy at the board level. The independent director of a company in India is vested with such high power to make decisions that usually every decision taken by them becomes a media highlight. Not only this, they are usually in board meetings with big businessmen, corporations, etc., thereby always having a chance of huge networking and success in their professional lives. 

Moreover, if we have a look at the trend of appointing an independent director in India for each coming year, there has been an increase in the demand for independent directors by the companies in India, thereby increasing the employment scope and demand for independent directors in India. Let us have a look at the trends and numbers concerning the appointment of independent directors in India through the following information available with respect to the independent directors in India.

The total number of independent directors appointed each year 

There is no sure shot number of the total number of independent directors appointed each year in India; however, an approximate number can be put up as that of the mid year of 2021, when there were approximately 22 lakh public companies in India. But, when we take a look at the data from the Bombay Stock Exchange, it states that approximately 5300 companies have registered their shares on the Bombay Stock Exchange. This data can be found on the official website of the Bombay Stock Exchange. The link to the same is here. And if we look at the data provided by the National Stock Exchange, it states that until the end of 2022, approximately 2,113 companies had registered their shares on the National Stock Exchange. This data can be found on the official website of the National Stock Exchange. The link to the same is here.

So, if we assume that each company will need a minimum of three to four directors (although the actual demand might be fluctuating a bit), then we will need at least 30,000 directors who are qualified enough to be appointed as independent directors. 

Scope of job opportunity of an independent director in the coming years

We just calculated that, at an estimate, we will need 30,000 directors who are qualified enough to be appointed as independent directors. However, this is not the limit of the scope of the job of an independent director in the coming years. The opportunity is much wider than that as of now. There are two main factors contributing to the cause. Let us try to understand the same:

The unlisted and private companies preparing to list their IPOs 

The IPO, or initial public offering, refers to the mechanism of making shares of a private corporation available to the general public in a new stock issuance for the first time. And though the unlisted and private companies do not require an independent director, once the unlisted and private companies go for the initial public offering (also known as the stock launch), they will also be required to appoint independent directors mandatorily. And thus, this will also increase the scope of job opportunities for an independent director in the coming years. 

Growth of the Indian economy in the next decade

India will probably be going through a boom of growth in the next decade, according to our economic survey of 2023 -24. As a result, such a boom of growth in the next decade will lead to companies going public in the economy and requiring independent directors. The value of our gross domestic product is also expected to be tripled by the next decade, according to our economic survey of 2023 -24. The survey can be read here. Thus, we will need thousands of independent directors for the same, and therefore, there is a very wide scope of job opportunities for an independent director in the coming years. 

The maximum allowed terms for the independent directors will come to an end in 2024. Since the maximum term for which an individual is allowed to occupy the position of an individual director is 10 years, the same will come to an end in 2024 because the majority of independent directors were appointed around 2014. The reason for the appointment of the majority of independent directors in 2014 is that the process under which an independent director is appointed in a company is prescribed under the Companies Act, 2013, read along with the Companies (Appointment and Qualification of Directors) Rules, 2014. After the rules came into force, it led to the appointment of a majority of independent directors. Thus, most of them will be coming to the end of their tenure in 2024, and therefore, this will lead to an increase in employment opportunities for independent directors by 2024, thereby increasing the scope of job opportunities for independent directors in the coming years. 

What will be the trend of appointing independent directors by the company in the next few years

The trend for the companies going for independent director hunting in the next few years can be summarised through the points given below:

• India has seen a rise in the number of independent directors over the years because of the huge demand for independent directors by Indian companies. The reason for the rise can be attributed to the terms of many independent directors coming to an end in 2024. The link to the same can be accessed here. 
• The companies are primarily on a hunt for independent directors in India who have special skills and expertise in corporate government, fund management, and strategic planning.
• Very recently, KPMG did a survey on the demands and requirements of independent directors in India. The survey revealed that at least 65 percent of the companies in India are planning to appoint independent directors to their boards of directors by the end of next year. The link to the pdf of the survey done by KPMG can be accessed here. 
• Since the companies in India are seeking to improve their corporate governance as enhanced by SEBI,  it will also increase the demand for independent directors in India, thereby taking the trend of appointing independent directors to a new height. 

Other important details about independent directors

The pay scale and remuneration of an independent director in India are quite high. Let us have a look at the same:

Remuneration: salary and pay scale

The salary of each independent director varies as per the company and the work of the independent director. However, there are usually two basic heads under which an independent director is paid the salary. The two basic heads can be divided as follows:

Sitting fee for an independent director for attending the board meetings 

For every board meeting that the independent director attends, he is paid a sitting fee for the same. According to Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, an independent director can be paid up to INR 1 lakhs as the sitting fee for attending the board meeting. 

Commission to the independent director 

This is also paid to an independent director of the company, and the commission is usually a part of the profit which the company makes. It is given to the independent director because of all the duties and responsibilities he takes care of in the company. The commission forms a larger part of the salary of the independent director appointed to a company. The independent director can be paid money from the total profit made by the company as commission to the independent director, which is according to the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. 

Incentives given to an independent director

Apart from the above mentioned remuneration, the independent director of a company is also provided with various other incentives, which vary from company to company. Different companies incentivise their independent directors in different ways. Let us try to understand the same through the incentive policy of Infosys Company. Infosys has its own remuneration policy for their independent directors, but apart from this remuneration, the independent director of the Infosys company also enjoys incentives like D&O Insurance (which  is basically the directors and officers insurance policy to pay for the personal liability of directors and officers for claims made against them while serving on the Board) up to 200 million USD and other insurance up to 100 million USD. This was an example of the incentive policy of Infosys and how Infosys pays its independent director, although other companies also pay and give incentives to their independent directors in a similar range, with variations according to the policy of their company. 

Appointment procedure of an independent director 

This part of the article discusses the appointment procedure of the independent director once they have successfully qualified the independent director online proficiency self assessment tests and other important details with respect to the appointment of the independent directors.

How is the independent director appointed

The independent director is appointed from the list of directors available on the independent director data bank. The companies look for individuals who have already qualified for the independent director online proficiency self assessment test. The companies can also appoint an individual as an independent director who is given permission to become an independent director without giving the independent director online proficiency self assessment test. However, they must meet all the other criteria that are required for an individual to be appointed as an independent director. 

Letter of appointment of an independent director

Once a company selects an individual to be appointed as the individual director of the company, they then have to proceed with the formalities to appoint him as such. In order to proceed with the formalities, the company is expected to issue the letter of appointment of an independent director to the individual. The contents of the letter of appointment of the individual director must contain the following things:

• The terms and conditions under which the individual is appointed as the independent director of the company;
• The code of conduct and the actions which the independent director of the company is expected to follow while in the chair;
• The duties and liabilities of the director and the code of professional ethics that a director is expected to maintain;
• The remuneration, pay scale, incentives and all other fees which the company pays to its independent director;
• The details about the various insurances being paid to the independent director of the company

Procedure to reappoint the independent director

In order to reappoint an individual as an independent director of the company, the board meeting evaluates the performance of the independent directors, and if the performance is up to the satisfaction level, he may be reappointed as the independent director of the company. The performance of the individual director of the company is evaluated by other directors on the basis of the performance appraisal report. The maximum tenure for which an independent director of a company can be reappointed is 10 years. 

Procedure for removal or resignation of the independent director

The process of removing an independent director of a company is the same as the process of removing any other director of the company, which is through the passing of an ordinary resolution in the board meeting of the company.

For the resignation of an independent director, he has to write the same to the board of directors of the company. He must mention the date on which he is resigning from the company as an independent director of the company. When the board of directors of the company receives the resignation of the independent directors of the company, they must intimate the same to the registrar of the company. 

Conclusion

An independent director is the individual who helps a company manage its affairs and  maintain its corporate governance policy. He can be appointed by a company on its board if he clears the independent directors online proficiency self assessment test within one year of his registration with the independent director data bank. The independent director data bank has a list of all the individuals who are willing to become an independent director and have qualified the independent director online proficiency self assessment test. 

Apart from this, they have a tenure of five years and they can consecutively occupy the office for two terms. Since the majority of them were appointed in 2014 after the enactment of the Companies (Appointment and Qualification of Directors) Rules, 2014, there will be a vast number of job opportunities for the position of an independent director in the next year. 

Frequently asked questions (FAQs) on how to become an independent director in India 

Here are some of the frequently asked questions by aspirants about becoming an independent director in India:

Frequently asked questions on the independent director online proficiency self assessment test and independent director data bank

How many attempts can an individual give of the independent director online proficiency self assessment test?

There is no bar on the number of attempts an individual can give the independent directors an online proficiency self assessment test. However, there should be a gap of at least one day in the two slots in which an individual is attempting the test. 

What is the mode of the independent director online proficiency self assessment test?

The independent director online proficiency self assessment test is conducted in online mode by the Indian Institute of Corporate Affairs (IICA).

Is it necessary for a candidate to be from a law or commerce background to be eligible to take the independent director online proficiency self assessment test?

No, it is not at all necessary for a candidate to be from a law or commerce background to be eligible to take the independent director online proficiency self assessment test. Candidates belonging to any category can take the independent director online proficiency self assessment test.

What is the nature of the questions asked in the independent director online proficiency self assessment test?

The independent director online proficiency self assessment test consists of objective questions (multiple choice questions).

What is the total time given to a candidate for the independent director online proficiency self assessment test?

The total time given to a candidate for completing the independent director online proficiency self assessment test is seventy five (75) minutes.

What happens if a candidate fails to clear the independent director online proficiency self assessment test within one year of his registration on the independent director data bank?

If a candidate fails to clear the independent director online proficiency self assessment test within one year of his registration on the independent director data bank, his name will be struck off the data bank. 

Frequently asked questions on appointment of independent directors 

What is the minimum age to get appointed as an independent director?

The minimum age to get appointed as an independent director is 21 years of age. 

Can an individual be appointed as an independent director of more than one company during the same period?

Yes, an individual can be appointed as an independent director in seven companies at the same time. 

Can a practising company secretary be appointed as an independent director of a company?

Yes, a practising company secretary can be appointed as an independent director of the company. However, the practising company secretary cannot be appointed as an independent director of the same company in which he or she is acting as the company secretary because the company secretary is the full time employee of the company and the independent directors cannot be a full time employee of the company. 

Can a candidate be reappointed as an independent director for two consecutive terms?

Yes, a candidate can be reappointed as an independent director for two consecutive terms.

Other frequently asked (miscellaneous) questions on independent directors in India 

Do all the directors require a director identification number (DIN)?

Yes, all the directors are required to have a director identification number. And not only the directors, even those individuals who are intending to be appointed as an individual are also required to have the director identification number (DIN).

What is the tenure of an independent director?

An independent director is appointed for a tenure of five years. 

References 

• https://blog.ipleaders.in/legal-position-of-directors-of-a-company/#Introduction
• https://cleartax.in/s/independent-directors-applicability-roles-and-duties
• https://cleartax.in/s/independent-directors-applicability-roles-and-duties
• https://blog.ipleaders.in/need-know-independent-directors-companies-act-2013/
• https://support.taxaj.com/portal/en/kb/articles/what-is-din-number#:~:text=DIN%20is%20a%20unique%20Director,are%20maintained%20in%20a%20database.
• https://www.independentdirectorsdatabank.in/