Independent Director Qualifications in India
India has introduced additional criteria for the appointment of independent directors in India.
The changes came into effect May 7, 2018 through the Companies (Appointment and Qualification of Directors) Second Amendment Rules, 2018.
Previously, the criteria were determined by the Companies (Appointment and Qualification of Directors) Rules, 2014.
Appointment of independent directors
Company law in India requires that a candidate being considered for appointment as an independent director should possess the following qualifications – necessary skills, experience, and knowledge in the domain of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations, or other disciplines related to the entity’s business.
The 2018 Amendment Rules introduces an additional qualification for independent directors to ensure they do not have a pecuniary relationship with the firm.
These are as follows:
- No relative of the independent director is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors; or,
- No relative of the independent director has given a guarantee or provided any security in connection with the insolvency of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company.
The above changes are in keeping with The Companies (Amendment) Act, 2017, which came into effect January 4, this year.
The 2017 Amendment Act includes new provisions that impact business structuring, disclosure and reporting, and compliance requirements, and aims to strengthen corporate governance in India.