Thursday, 22 February 2018

Government tightens the norms regarding removal of Independent Directors reappointed under Companies Act 2013

MCA has issued the Companies (Removal of Difficulties) Order, 2018 to provide the clarity on removal of re-appointed independent director in a company by way of special resolution.

Independent directors appointed for a second term at corporates can now be removed only by a special resolution passed by shareholders, with the government tightening the rules.

Before removal, such independent directors should also be given "reasonable opportunity of being heard", according to the corporate affairs ministry.

The move comes against the backdrop of concerns in certain quarters about the independence of independent directors in carrying out their functions and instances of such people being removed from the boards of companies by promoter entities.

A special resolution requires approval from at least 75 per cent shareholders present at a meeting whereas only a minimum of 50 per cent is needed in case of ordinary resolutions.

Coming out with the new provision, the ministry said the decision is to ensure better corporate governance and balancing of powers of the boards.

In this regard, the ministry has issued a 'Removal of Difficulties' order to introduce a new provision under Section 169 of the Companies Act.