Q.What is an Independent Director? State the criteria of independence and the requirement for appointing independent directors under the Companies Act, 2013.

An independent director's entire value to a company's governance depends on genuinely having no stake or relationship that could compromise objective judgment — which is why the Act defines "independence" with real specificity rather than leaving it to impression.

The concept of the independent director was significantly strengthened by the Companies Act, 2013, in response to the recognised risk that a Board composed entirely of directors connected to the promoters or management of a company may not provide genuinely objective oversight of that same management's decisions. An independent director is, at its core, a non-executive director — someone not involved in the day-to-day running of the company — who additionally satisfies a defined set of independence criteria intended to rule out any material financial or personal connection that could compromise objective judgment.

Section 149(6) sets out these criteria in detail. Broadly, a person can qualify as an independent director only if he or she: is a person of integrity and possesses relevant expertise and experience in the Board's judgment; is not, and was not, a promoter of the company or its holding, subsidiary, or associate company; is not related to promoters or directors of the company or its holding, subsidiary, or associate company; has, or had, no material pecuniary relationship with the company, its holding, subsidiary, or associate company, or their promoters or directors, during the two immediately preceding financial years or during the current financial year (certain limited exceptions apply, such as remuneration received purely as an independent director); does not have, and none of his or her relatives has, certain specified levels of financial stake, employment, or professional relationship with the company or its group entities; and is not a Chief Executive Officer or director of certain not-for-profit organisations that receive significant funding from the company or hold significant voting power in it. The evident common thread across all these criteria is financial and relational distance from the company's promoters and management — an independent director must have nothing meaningful to gain or lose personally from how a particular Board decision comes out, which is precisely what equips such a director to challenge management's proposals candidly where warranted. …