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Appointment of Independent Directors – Certain issues clarified

17 June, 2014

Ministry of Corporate Affairs has clarified that transactions like availing telecom services, courier services, etc., between a company and its independent director that are on par with products or services that are provided by the company to any member of the general public including price, will not create ‘pecuniary relationship’ with the said company as contemplated under Section 149(6)(c to determine independence.

General Circular No. 14/2014, dated 9-6-2014 further clarifies that the ‘pecuniary relationship’ provided under Section 146(6)(c) of the Act,  does not include receipt of remuneration, from one or more companies, by way of fee provided under sub-section (5) of Section 197, reimbursement of expenses for participation in the Board and other meetings and profit related commission approved by the members, in accordance with the Companies Act.

It has also been clarified that the appointment of an ID will have to be formalized through a letter of appointment in view of the specific provisions of Schedule IV.  The Ministry has also clarified that if it is intended to appoint existing IDs under the new Act, such appointment would have to be made afresh within a year. Further, if the tenure of an ID was less than 5 years, the tenure would extend only to two terms regardless of whether the appointment for one tenure was for five years or less.
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