Qualifications, Disqualifications and DIN

Not everyone who wishes to serve on a company's Board is legally permitted to. The Companies Act, 2013 sets out both a positive qualification for one special category of director — the Independent Director — and a list of grounds under Section 164 on which a person is barred outright from being appointed or continuing as a director of any company.

An Independent Director, as defined under Section 149(6), is a director who is not a promoter or a person connected to the promoter or management of the company, and who has no material or pecuniary relationship with the company, its holding, subsidiary or associate companies, or their promoters and directors, apart from receiving the sitting fees and remuneration ordinarily payable to a director. Because such a director has no financial stake riding on management's decisions, they are expected to bring objective, independent judgment to Board deliberations, protecting the interests of minority shareholders and the company as a whole. Certain classes of companies are legally required to appoint a minimum number of independent directors on their Boards.

Disqualifications under Section 164 list the circumstances that make a person ineligible to be appointed — or to remain — a director. These include: a person of unsound mind, as declared by a competent court; an undischarged insolvent; a person who has applied to be adjudicated as insolvent and whose application is pending; a person convicted by a court of any offence involving moral turpitude (dishonesty or moral wrongdoing) and sentenced to imprisonment for six months or more, where five years have not elapsed since the sentence ended; a person who has not paid any call money due on shares held by them, where six months have passed since the due date; and certain other specified grounds relating to convictions for related-party transactions or fraud. The underlying idea is straightforward — a director occupies a position of trust over other people's money, so the law screens out individuals whose own conduct or circumstances make that trust unsafe. …