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Steps to Become an Independent Director of a Listed Company

 Becoming an Independent Director of a listed company in India requires a combination of professional qualifications, experience, compliance with regulatory requirements, and the ability to fulfill the responsibilities as per the Companies Act, 2013, and SEBI regulations. Here’s a comprehensive guide on how to become an Independent Director:

Steps to Become an Independent Director of a Listed Company:


1. Meet the Eligibility Criteria

The basic requirements for becoming an Independent Director are outlined under the Companies Act, 2013 and SEBI (LODR) Regulations, 2015. You must meet the following criteria:

  • Independence: You should not have any material or financial relationship with the company, its directors, promoters, or holding company that could affect your independence.
  • Qualifications and Experience: You should have expertise in fields like law, finance, corporate governance, or management relevant to the company’s industry.
  • No Pecuniary Relationships: You should not have any pecuniary relationship, apart from receiving director remuneration, with the company, its subsidiaries, or associates in the last two years.

Disqualifications include:

  • Being a promoter or related to promoters.
  • Holding more than 2% of the voting rights in the company.
  • Being employed in the company or its group companies in the past three financial years.

2. Get Registered in the Independent Directors’ Databank

The Ministry of Corporate Affairs (MCA) has made it mandatory for all Independent Directors to register in the Independent Directors’ Databank managed by the Indian Institute of Corporate Affairs (IICA).

Steps to register:

  • Visit the IICA Portal: Go to the IICA website.
  • Create an Account: Provide your personal details, professional experience, and qualifications.
  • Select the Membership Plan: There are options for 1-year, 5-year, or lifetime membership.
  • Complete Registration: Pay the applicable fees and submit the registration.

3. Pass the Online Proficiency Test

As per MCA’s guidelines, individuals registered in the databank are required to pass an online Proficiency Self-Assessment Test conducted by IICA, unless they have certain exemptions based on professional experience.

Key Details:

  • The test consists of questions related to company law, securities law, and corporate governance.
  • You must pass the test within two years of registering in the databank.
  • A minimum score of 60% is required to pass.
  • Certain experienced professionals like Chartered Accountants, Company Secretaries, Cost Accountants, or those with prior experience in directorship positions for 10+ years may be exempted from taking the test.

4. Build Professional Experience

  • Gain Relevant Experience: You should have substantial experience in your field, which can be law, finance, corporate governance, strategy, etc., to be considered by a listed company.
  • Network with Corporate Leaders: Independent Directors are often chosen based on recommendations and networks. Building professional relationships with company directors, CEOs, and board members can help.

5. Seek Appointment on the Board

  • Apply for Independent Director Positions: Some companies may publicly advertise Independent Director positions, while others may use recruitment consultants or headhunters.
  • Utilize the IICA Databank: Listed companies refer to the IICA databank to identify qualified independent directors. Ensure your profile is well-crafted and highlights your qualifications and experience.
  • Network and Get Recommendations: Often, Independent Directors are appointed based on recommendations. Make sure your name is known in the right circles within your industry.

6. Understand Your Roles and Responsibilities

As an Independent Director, you are expected to:

  • Ensure the board follows good corporate governance practices.
  • Provide objective oversight of the company's performance.
  • Protect minority shareholder interests.
  • Take part in key committees like the Audit Committee, Nomination and Remuneration Committee, etc.

You should be well-versed in your responsibilities under:

  • The Companies Act, 2013.
  • SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
  • Corporate Governance Standards.

7. Continuous Professional Development

After becoming an Independent Director, you must:

  • Stay updated with regulatory changes.
  • Participate in training programs and workshops offered by IICA or other corporate governance institutions.
  • Complete any additional compliance training as required by the company or law.

8. Obtain Consent and File Necessary Disclosures

  • Once selected, you need to provide consent to act as an Independent Director and comply with disclosure requirements under the Companies Act, 2013.
  • File necessary forms with the MCA (like DIR-12) to confirm your appointment as an Independent Director.

Key Points to Remember:

  • Tenure: Independent Directors can hold office for up to 5 consecutive years, with the option for reappointment, but no more than two consecutive terms.
  • Maximum Number of Directorships: You can hold directorships in up to 7 listed companies as an Independent Director.
  • Board Committees: Be prepared to serve on crucial committees like the Audit Committee and the Nomination and Remuneration Committee.

Conclusion:

Becoming an Independent Director of a listed company in India involves meeting the legal requirements, registering in the databank, passing the proficiency test, and demonstrating a strong professional track record. By maintaining an updated professional profile and building connections within the corporate community, you can position yourself as a valuable candidate for Independent Directorships.

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