Independent directors are among the key personnel in effective administration of companies, particularly listed company. if they act fair and independent, they ensure that the company administration and business operations are being undertaken in an efficient and transparent mode, eliminating or at least reducing fraudulent acts in the company or mismanagement of the company funds.
Off late, the independent directors’ fraternity has had huge concerns about the restrictions placed on the pecuniary relationship of the independent directors with the company. Some of the government actions and restrictions appeared to be very high-handed and unreasonable.
Recently, some of the existing restrictions on the pecuniary benefits of the independent directors are removed with an objective to facilitate the independent directors to earn additional pecuniary benefits such as sitting fee and commission along with the remuneration.
Accordingly, Section 149 of the companies Act, 2013 is modified by the Ministry of Corporate Affairs (MCA) empowering the independent directors and the company to maintain pecuniary relationship between them covering up to 10% of independent directors’ income including commission and sitting fee.
Up Rs. 100,000 can be paid as a sitting fee to the independent director for a board meeting or committee meeting in addition to some commission.
The commission fee paid to all the independent directors of the company in aggregate shall be up to 1% of the company profits.
Prior to this modification, there was no scope for any pecuniary relationship amid the company and independent director apart from the remuneration and some commission.
The latest modifications tend to expand the horizon of independent directors by enabling professionals such as eminent lawyers, chartered accountants and other professionals to serve as independent directors as earlier, the people in advisory role were more or less prohibited from donning the designation of the independent director.
The recent modifications to the provisions related to appointments and qualifications of the independent directors have further resulted in the relaxation of the restrictions on the pecuniary relationship of the company personnel relatives with the company following the removal of the prohibition on pecuniary relationship of the relatives with
The prohibition of the appointment of any person as an independent director on the ground that any employee of the company is the relative of such person is uplifted – which is in line with the SEBI (Listing, obligations and Disclosure Requirements) (Amendment) Regulations, 2015.
The exclusion of the restrictions on independent directors related to pecuniary relationship with the company will certainly a huge advantage to the independent directors’ fraternity as more talented and qualified professionals will come forward to accept independent directors designation – which will aid in fortifying the corporate governance standards of the company and uplift the integrity of the capital market.