The responsibilities, rewards and liabilities of independent directors will be transformed by the new Companies Act. By Shinoj Koshy, Preetha S and Vandana V

The board of directors is the most important decision-making body of a company. Its independence is indispensable in ensuring high standards of corporate governance. In the wake of recent corporate scams that India has witnessed and the subsequent increase in the number of resignations by independent directors from the boards of companies, the revamp of the existing corporate regime’s concept of independent director is a welcome change. For the first time, the Companies Act, 2013 (new act), includes guidance about the role and standards that independent directors must aim to achieve and maintain.

This article analyses the concept of independent directors in listed companies as envisaged under clause 49 of the Listing Agreement and the Companies Act, 1956 (1956 act), and examines the changes brought about by the new act. The article focuses on the issues, potential areas of conflict with the Listing Agreement, and the challenges involved in implementing the new act’s provisions relating to independent directors.

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Shinoj Koshy is the head of the corporate practice at Nishith Desai Associates, where Preetha S and Vandana V are associates. They can be contacted at shinoj.koshy@nishithdesai.com.