New norms: Now lawyers, CAs can be appointed independent directors

In what could be a big relief for independent directors, the government has removed a blanket ban on pecuniary benefits other than remuneration an independent director can draw from a company on whose Board he or she serves. Experts said this will increase the pool of independent directors as professionals such as lawyers and charatered accountants will also be able to participate. Earlier, those in the advisory role were restricted from serving as independent directors on Board of the same company.

The Ministry of Corporate Affairs (MCA) has made a change in the provisions under Section 149 of the Companies Act, 2013, allowing independent directors to have pecuniary relationship with the company to the tune of 10% of the total income, which includes sitting fee and commission. Until now, the independent directors were completely barred from having any kind of pecuniary relationship with a company other than the fee and some commission.

Welcoming the development, Sakate Khaitan, senior partner at Khaitan Legal Associates, said, “It is a sensible amendment. This will increase the pool of independent directors. Those who work as counsels and advise companies in individual capacity will be able to come on board as independent directors of the same company.”

“This rule was a hurdle for professionals like lawyers and chartered accountants. They will now get flexibility,” says Ramakant Rai, partner at Trilegal.

The restrictions on the pecuniary relationship have also been relaxed for the relatives of the independent directors following the amendment in the rules regarding appointments and qualifications of independent directors under section 149 of the Companies Act. The relatives of the independent directors were so far not allowed to have any pecuniary relationship with the company.

Independent directors and their relatives could not avail of consumer services provided by a company on whose Board the person was serving. “If one was on the Board of a hotel company, neither he nor his relatives could stay in the hotel belonging to that company. Similarly, the independent director or the relatives serving on the Board of a telecom company couldn’t use its service,” said an official.

The restriction on appointment of an individual as an independent director if his relative is an employee of the organisation has also been removed. This is in line with the Sebi (Listing, obligations and disclosure requirements) (Amendment) Regulations, 2015.

An independent director can be paid up to Rs 1 lakh as sitting fee per Board meeting or a committee meeting, apart from some commission. The sum total of all commission fee paid to all independent directors in a company can be up to 1% of the company’s profit.

(By Anjul Tomar, DNA Money