ROLE OF INDEPENDENT DIRECTORS
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Abstract
With the explosion of scandals pertaining to Corporates due to mismanagement and fraud in recent years, the regulators all over the world have been implementing a series of policies aimed at improving corporate governance and ensuring that companies follow ethical and normative rules of business. Thus, as a part of this initiative, the companies are required to nominate a certain percentage of their board to persons who are not affiliated to the company. These are the so-called independent directors who sit on the boards of companies in a purely professional manner without having a hand in the day to day running or other activities of the company.
In India, the gravity of Independent Directors was recognized with the introduction of corporate governance. The Companies Act, 1956 does not directly talk about IDs, however, Clause 49 of the Listing Agreement which is applicable on all listed companies mandates the appointment of ID's on the Board. A need has been felt to update the Act and make it globally compliant and more meaningful in the context of investor protection and customer interest. The need for IDs aroused due to the need of a strong framework of corporate governance in the functioning of the company. There was a growing importance of their role and responsibility. Thus, the Companies Act 2013 came into picture, which defined and clearly enumerated the role of IDs and their qualification and appointment in the board of the company and their importance in good corporate governance in the company. Also, the new Act specifies their duties and liabilities, making them a substantial part of the company.
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