Independent Director Appointment – Transitional period of 1 year

New Companies Act 2013 is effective from 1st April, 2014. Section 149 of the Act provides for appointment of Directors on the Board of the Company.

Sub Section 4 requires every Listed & other classified Companies to appoint Independent Directors of specified numbers on the Board.

Sub Section 3 requires every Company hall have at least 1 resident director who has stayed in India for more than 182 days in previous year.

Sub section 5 provides a transitional period of 1 year from the date of commencement of the Act to comply with sub section 4 i.e. appointment of Independent Director. Hence Companies will have sufficient to identify the person fitting in the criteria’s of independence.

In majority of the books published so far on the Companies Act it is misprinted that appointment of resident director has 1 year transitional period & Independent Director is to be appointed immediately.

After referring to official Gazette, it is confirmed that Independent Director Appointment has a transitional period of 1 year.

However it would be interesting to also have a look at following requirements, which requires the appointment of Independent Director in the Company

CSR Rule 5 (1) (i) allows the Public Unlisted Company to form a CSR committee of existing directors only if they are not required to appoint Independent Director on their Board vide section 149 (4). The said section is subject to sub section (5) which grants 1 year period. Hence my view is that whenever company will have independent director on its Board it has to add them in CSR Committee.

Section 177 (3) allows the companies to continue existing Audit committees for a period of 1 year. Hence when ever independent directors will be inducted, they can be included in the Audit Committee.

Section 178 however don’t provide any such concession to Companies and hence whenever Companies are required to constitute Nomination & Remuneration Committee the same should have the Independent Director.

Hence 1 year period of appointment of Independent Director is subject to the requirement of section 178 formation of such committee.

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