Implications of Notifications dated July 5, 2017, issued by Ministry of Corporate Affairs(MCA) regarding an amendment to Schedule IV of the Act and requirements relating to appointment of Independent directors in certain categories of companies
MCA has come out with two notifications dated July 5, 2017, which make certain amendments respectively to Schedule IV of the Act concerning the code of Independent directors and to the companies (Appointment and Qualification) of Directors Rules,2014.
The implications of the amendments are analyzed as follows:
1.Amendments to Schedule IV of the Act relating to code of independent directors (IDs)
In Paragraph III in Sub-para(12), the words ”acting within his authority” will be substituted by the words ”act within their authority”.
Paragraph III in the Schedule speaks about the duties of independent directors. Sub-para (12) as existing is drafted defectively to refer to the individual duty of the ID. The change is to only establish the collective duties of the IDs.
As per existing paragraph VI (2), if there is resignation or removal of an ID, he shall be replaced within 182 days. This period is being reduced to three months. Hence an ID will have to be replaced within three months.
The above amendment is also intended to remove the existing contradiction between Schedule IV and Rule 4 (second Proviso ) to the Companies(Appointment and qualification of Directors)Rules, 2014 which provides for replacement of an ID either at the next Board Meeting or three months whichever is later.
In paragraph VII in sub-para (1) for the words ”in a year” the words” in a financial year “will be substituted. Paragraph VII provides that at least one Meeting of the Independent directors shall be held in a The amendment clarifies that the Meeting should be held at least once in a financial year.
Exemption from the applicability of Schedule IV for Government Companies
The following provisions of Schedule IV shall not apply to a Govt. Company if the requirements given below are specified by the concerned Ministries or Departments of the Central Govt or the state Government as the case may be and such requirements are complied with by the concerned Govt company.
a) Provisions relating to evaluation of the performance of the Board and Management
b) determination of levels of remuneration for executive directors, KMPs and members of Senior
Management
c)Manner of appointment and re-appointment of