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The Code is a guide to professional
conduct for independent directors.
Adherence to these standards by
independent directors and fulfilment of
their responsibilities in a
professional and faithful manner will
promote confidence of the investment
community, particularly minority
shareholders, regulators and companies
in the institution of independent
directors.
I. Guidelines of professional
conduct:
An independent director shall:
(1) uphold ethical standards of
integrity and probity;
(2) act objectively and constructively
while exercising his duties;
(3) exercise his responsibilities in a
bona fide manner in the interest of the
company;
(4) devote sufficient time and
attention to his professional
obligations for informed and balanced
decision making;
(5) not allow any extraneous
considerations that will vitiate his
exercise of objective independent
judgment in the paramount interest of
the company as a whole, while
concurring in or dissenting from the
collective judgment of the Board in its
decision making;
(6) not abuse his position to the
detriment of the company or its
shareholders or for the purpose of
gaining direct or indirect personal
advantage or advantage for any
associated person;
(7) refrain from any action that would
lead to loss of his independence;
(8) where circumstances arise which
make an independent director lose his
independence, the independent director
must immediately inform the Board
accordingly;
(9) assist the company in implementing
the best corporate governance
practices.
II. Role and functions:
The independent directors shall:
(1) help in bringing an independent
judgment to bear on the Board’s
deliberations especially on issues of
strategy, performance, risk management,
resources, key appointments and
standards of conduct;
(2) bring an objective view in the
evaluation of the performance of board
and management;
(3) scrutinise the performance of
management in meeting agreed goals and
objectives and monitor the reporting of
performance;
(4) satisfy themselves on the integrity
of financial information and that
financial controls and the systems of
risk management are robust and
defensible;
(5) safeguard the interests of all
stakeholders, particularly the minority
shareholders;
(6) balance the conflicting interest of
the stakeholders;
(7) determine appropriate levels of
remuneration of executive directors,
key managerial personnel and senior
management and have a prime role in
appointing and where necessary
recommend removal of executive
directors, key managerial personnel and
senior management;
(8) moderate and arbitrate in the
interest of the company as a whole, in
situations of conflict between
management and shareholder’s interest.
III. Duties:
The independent directors shall—
(1) undertake appropriate induction and
regularly update and refresh their
skills, knowledge and familiarity with
the company;
(2) seek appropriate clarification or
amplification of information and, where
necessary, take and follow appropriate
professional advice and opinion of
outside experts at the expense of the
company;
(3) strive to attend all meetings of
the Board of Directors and of the Board
committees of which he is a member;
(4) participate constructively and
actively in the committees of the Board
in which they are chairpersons or
members;
(5) strive to attend the general
meetings of the company;
(6) where they have concerns about the
running of the company or a proposed
action, ensure that these are addressed
by the Board and, to the extent that
they are not resolved, insist that
their concerns are recorded in the
minutes of the Board meeting;
(7) keep themselves well informed about
the company and the external
environment in which it operates;
(8) not to unfairly obstruct the
functioning of an otherwise proper
Board or committee of the Board;
(9) pay sufficient attention and ensure
that adequate deliberations are held
before approving related party
transactions and assure themselves that
the same are in the interest of the
company;
(10) ascertain and ensure that the
company has an adequate and functional
vigil mechanism and to ensure that the
interests of a person who uses such
mechanism are not prejudicially
affected on account of such use;
(11) report concerns about unethical
behaviour, actual or suspected fraud or
violation of the company’s code of
conduct or ethics policy;
(12) 1["act within their
authority"], assist in protecting the
legitimate interests of the company,
shareholders and its employees;
(13) not disclose confidential
information, including commercial
secrets, technologies, advertising and
sales promotion plans, unpublished
price sensitive information, unless
such disclosure is expressly approved
by the Board or required by law.
IV. Manner of appointment:
(1) Appointment process of independent
directors shall be independent of the
company management; while selecting
independent directors the Board shall
ensure that there is appropriate
balance of skills, experience and
knowledge in the Board so as to enable
the Board to discharge its functions
and duties effectively.
(2) The appointment of independent
director(s) of the company shall be
approved at the meeting of the
shareholders.
(3) The explanatory statement attached
to the notice of the meeting for
approving the appointment of
independent director shall include a
statement that in the opinion of the
Board, the independent director
proposed to be appointed fulfils the
conditions specified in the Act and the
rules made thereunder and that the
proposed director is independent of the
management.
(4) The appointment of independent
directors shall be formalised through a
letter of appointment
, which shall set out :
(a) the term of appointment;
(b) the expectation of the Board from
the appointed director; the Board-level
committee(s) in which the director is
expected to serve and its tasks;
(c) the fiduciary duties that come with
such an appointment along with
accompanying liabilities;
(d) provision for Directors and
Officers (D and O) insurance, if any;
(e) the Code of Business Ethics that
the company expects its directors and
employees to follow;
(f) the list of actions that a director
should not do while functioning as such
in the company; and
(g) the remuneration, mentioning
periodic fees, reimbursement of
expenses for participation in the
Boards and other meetings and profit
related commission,
if any.
(5) The terms and conditions of
appointment of independent directors
shall be open for inspection at the
registered office of the company by any
member during normal business hours.
(6) The terms and conditions of
appointment of independent directors
shall also be posted on the company’s
website.
V. Re-appointment:
The re-appointment of independent
director shall be on the basis of
report of performance evaluation.
VI. Resignation or removal:
(1) The resignation or removal of an
independent director shall be in the
same manner as is provided in sections
168
and
169
of the Act.
(2) An independent director who resigns
or is removed from the Board of the
company shall be replaced by a new
independent director within 2["three months"] from the
date of such resignation or removal, as
the case may be.
(3) Where the company fulfils the
requirement of independent directors in
its Board even without filling the
vacancy created by such resignation or
removal, as the case may be, the
requirement of replacement by a new
independent director shall not apply.
VII. Separate meetings:
(1) The independent directors of the
company shall hold at least one meeting 3["in a financial year"],
without the attendance of
non-independent directors and members
of management;
(2) All the independent directors of
the company shall strive to be present
at such meeting;
(3) The meeting shall:
(a) review the performance of
non-independent directors and the Board
as a whole;
(b) review the performance of the
Chairperson of the company, taking into
account the views of executive
directors and non-executive directors;
(c) assess the quality, quantity and
timeliness of flow of information
between the company management and the
Board that is necessary for the Board
to effectively and reasonably perform
their duties.
VIII. Evaluation mechanism:
(1) The performance evaluation of
independent directors shall be done by
the entire Board of Directors,
excluding the director being evaluated.
(2) On the basis of the report of
performance evaluation, it shall be
determined whether to extend or
continue the term of appointment of the
independent director.
4
["Note: The provisions of sub-paragraph
(2) and (7) of paragraph II, paragraph
IV, paragraph, clauses (a) and (b) of
sub-paragraph (3) of paragraph VII and
paragraph VIII shall not apply in the
case of a Government company as defined
under clause (45) of section 2 of the
Companies Act,2013 (18 of 2013), if the
requirements in respect of matters
specified in these paragraphs are
specified by the concerned Ministries
or Departments of the Central
Government or as the case may be' the
State Governments and such requirements
are complied with by the Government
companies."].
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