Regulatory changes relating to role of Independent Directors & role and duties of Nominee Director as per SC in Tata-Mistry Judgment – An Analysis

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  • Last Updated on 17 September, 2021

Role of Independent Directors & Role And Duties of Nominee Director

[2021] 130 211 (Article)

Independent Director

The role of Independent Director on the Board is very critical in the sense that it is a combination of both advisory and monitoring the compliance and adhering to Corporate Governance. In certain companies, the same will slightly vary but the essence is that the company is fully compliant with its Corporate Governance regime and the advisory function may even be overstated and will have the highest standards. In order to answer, whether the Independent Director is really independent, the only answer lies in the assertion of independence by the Independent Director himself in the form of a certificate to this effect. The independence can be gauged very easily i.e. if an Independent Director finds that something wrong or a miss, then he should immediately raise it, by doing so, he sets an example of an Independent Director. Further, the Independent Director should have adequate knowledge and skills to comprehend the various vires of law in order to exercise his independence. Sometimes, due to lack of time, the Independent Director may not have sector-specific knowledge of the various laws and thus, he should have reasonable knowledge and analytical ability to understand the nuances and respond to the multiplicity of information and the various MIS data provided by the Company, including the various periodical financial statements, which will be placed before the Board for approval. This article provides the changes relating to the role of Independent Directors adopted by SEBI and also the role and duties of Nominee Director as per the Apex Court judgment in the Tata Consultancy Services Ltd. v. Cyrus Investment (P.) Ltd. [2021] 125 384.

Provisions relating to Independent Directors under the Companies Act, 2013

While the Companies Act, 2013 has for the first time defined an Independent Director, the various provisions relating to Independent Directors viz., Declaration of Independence [Sec 149(6)], Provisions relating to the mandatory appointment of Independent Director [(Sec 149(4)], Duties of Directors (Sec 166) in addition to the duties outlined in Schedule IV -Code for Independent Directors, Appointment of Independent Directors in Audit Committee (Sec 177), Nomination & Remuneration Committee & Stakeholders Relationship Committee (Sec 178), Remuneration to Independent Directors [(Sec 197(5)] and other provisions, for the sake of brevity are not repeated in this article.

Securities Exchange Board of India (SEBI)

In order to safeguard the larger interest of the minority shareholders on 1st March 2021 SEBI Came up with a consultative paper on “Review of Regulatory Provisions related to Independent Directors” and invited comments. Based on various comments received, SEBI on 29th June 2021 at its Board Meeting has taken crucial decisions on this subject and came out with PR No; 22/2021 on the review of regulatory provisions related to Independent Directors.

The Board approved amendments to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 pertaining to regulatory provisions related to Independent Directors which include the following:-

(a) Appointment /reappointment and removal of Independent Directors

The decision of SEBI is that appointment/reappointment and removal of Independent Directors shall be through a special resolution of shareholders for all listed entities.

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