Removal of independent directors

Govt tightens norms for removal of independent directors

The independent directors assigned for a second term in the companies can now only be removed by a special resolution approved by the shareholders, with the government upgrading the rules.

Before the dismissal said independent directors should also receive “a reasonable opportunity to be heard,” according to the ministry of corporate affairs.

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Govt tightens norms for removal of independent directors

Elimination of Difficulties

The measure arises in a context of concern in certain sectors about the independence of independent directors in the performance of their duties and the instances of those who are eliminated from the boards of the companies through the promotion of entities.

A special resolution requires the approval of at least 75 percent of the shareholders. present in a meeting, while only a minimum of 50 percent is needed in case of ordinary resolutions.

Leaving the new provision, the ministry said the decision is to ensure better corporate governance and the balance of powers of the councils. In this regard, the ministry issued an ‘Elimination of Difficulties‘ order to introduce a new provision under Section 169 of the Companies Act.

Article 169 refers to the dismissal of directors. An independent director appointed for a second term will be removed by the company only by passing a special resolution and after giving him a reasonable chance to be heard, the order issued Wednesday.

Until now, an independent director can be assigned to a second term only through a separate special resolution, while that person can be terminated through an ordinary resolution.

Guaranteeing better corporate governance in companies and the balance of powers of the company’s board of directors, it is considered necessary to amend article 169 of the Companies Act of 2013 to stipulate the dismissal of the mentioned independent director. through a special resolution.

The ministry seeks to strengthen the independent directors’ regime and plans to carry out a comprehensive review of its operation as part of efforts to strengthen the corporate governance framework. Recently a senior official had said the ministry planned to create an independent database of directors under the Companies Act.

It is a positive measure to strengthen corporate governance in companies and those independent directors would feel safe. At a time when the government is working to make ease its role in corporate affairs, the role of independent directors is more vital now.