Independent director
A director, other than a managing, whole-time or nominee director, who meets the independence criteria in Section 149(6) of the Companies Act, 2013 (Section 2(47)).
Explained
Section 2(47) of the Companies Act, 2013 defines an independent director as one referred to in Section 149(6). That sub-section describes a director other than a managing director, a whole-time director or a nominee director who, in the Board's opinion, is a person of integrity with relevant expertise and experience, and who satisfies a series of negative tests: he is not and was not a promoter of the company or its holding, subsidiary or associate company, is not related to promoters or directors, and does not have the pecuniary relationships, shareholdings or positions that the clauses of Section 149(6) disqualify.
Section 149(4) requires every listed public company to have at least one third of its total directors as independent directors, with any fraction rounded off as one, and lets the Central Government prescribe a minimum for other classes of public companies. Every independent director must declare that he meets the criteria at the first Board meeting he attends, at the first meeting in every financial year, and on any change of circumstances (Section 149(7)). The company and its independent directors must follow the code in Schedule IV (Section 149(8)). Selection may be made from a notified databank (Section 150).
Tenure and liability rules are frequently tested. An independent director holds office for up to five consecutive years and may be reappointed by special resolution (Section 149(10)), but may not serve more than two consecutive terms; he becomes eligible again after three years, during which he may not be associated with the company in any capacity (Section 149(11)). Under Section 149(13), the provisions on retirement by rotation do not apply. He receives sitting fees, reimbursement and profit related commission but no stock options (Section 149(9)). Under Section 149(12), he is liable only for acts of the company that occurred with his knowledge, attributable through Board processes, and with his consent or connivance, or where he did not act diligently.
Independent directors must form a majority of the Audit Committee under Section 177(2).
What the law says
(47) “independent director” means an independent director referred to in sub-section (6) of section 149;
Clause (47) defines independent director
(4) Every listed public company shall have at least one-third of the total number of directors as independent directors and the Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies.
Explanation.—For the purposes of this sub-section, any fraction contained in such one-third number shall be rounded off as one.
(5) Every company existing on or before the date of commencement of this Act shall, within one year from such commencement or from the date of notification of the rules in this regard as may be applicable, comply with the requirements of the provisions of sub-section (4).
Criteria, number, tenure, remuneration and liability
(1) Subject to the provisions contained in sub-section (6) of section 149, an independent director may be selected from a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent directors, maintained by any body, institute or association, as may be notified by the Central Government, having expertise in creation and maintenance of such data bank and put on their website for the use by the company making the appointment of such directors:
Provided that responsibility of exercising due diligence before selecting a person from the data bank referred to above, as an independent director shall lie with the company making such appointment.
(2) The appointment of independent director shall be approved by the company in general meeting as provided in sub-section (2) of section 152 and the explanatory statement annexed to the notice of the general meeting called to consider the said appointment shall indicate the justification for choosing the appointee for appointment as independent director.
Selection from databank of independent directors
(2) The Audit Committee shall consist of a minimum of three directors with independent directors forming a majority:
Provided that majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement.
(3) Every Audit Committee of a company existing immediately before the commencement of this Act shall, within one year of such commencement, be reconstituted in accordance with sub-section (2).
Audit Committee with a majority of independent directors
For the exam
- Defined in Section 2(47) read with Section 149(6) Companies Act, 2013.
- Listed public company: at least one third of directors must be independent (Section 149(4)).
- Term up to five years; maximum two consecutive terms; three year cooling off (Section 149(10), (11)).
- Not liable to retire by rotation (Section 149(13)); no stock options (Section 149(9)).
- Liable only for acts with his knowledge through Board processes and consent, or lack of diligence (Section 149(12)).
13 questions in the Law Maker question bank use this term. Practise Company Law questions
Related terms
- Public companyUnder Section 2(71) of the Companies Act, 2013, a company that is not a private company and has the prescribed minimum paid-up capital, including a subsidiary of a non private company.
- Private companyA company whose articles restrict share transfer, limit members to two hundred (except a One Person Company) and bar public invitation to subscribe for its securities. Section 2(68), Companies Act, 2013.
- Government companyA company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, one or more State Governments, or both, including a subsidiary of such a company.
- Small companyUnder Section 2(85) of the Companies Act, 2013, a company other than a public company whose paid-up capital and turnover are both within the prescribed limits.
- One Person CompanyUnder Section 2(62) of the Companies Act, 2013, a company which has only one person as a member. It is a form of private company formed under Section 3(1)(c).
Further reading
Checked 6 November 2026. Statutory text is quoted from the Bare Acts library, taken from India Code. See the full glossary.