Databank of Independent Directors: Section 150

The databank of independent directors is the pool section 150 of the Companies Act, 2013 points a company towards when it is filling an independent seat. It holds the names, addresses and qualifications of persons who are eligible and willing to act as independent directors, it is maintained by a body, institute or association notified by the Central Government, and it is published on that body's website for the use of companies making such appointments.

What does section 150 say about the databank of independent directors?

Three limbs, and the qualifying words in each one do the work. Note that the consolidation prints the term both ways, which matters if you are searching the text: the operative words of sub-sections (1) to (3) read "data bank", the section's own body heading reads "maintenance of databank of independent directors" closed up, and the table of contents reverts to "data bank". Search for both spellings.

Sub-section (1) opens subject to the provisions contained in section 149(6). That is the independence test, which independent director under section 149 covers. Presence in the data bank is not a substitute for it: a person listed there must still satisfy section 149(6) in relation to the particular company appointing him, and several of those tests are about relationships with that company rather than about the person in the abstract.

The operative verb is may. An independent director "may be selected" from the data bank. The section does not, in its own words, make the data bank the sole permitted source of candidates.

The maintainer is any body, institute or association as may be notified by the Central Government, having expertise in the creation and maintenance of such a data bank, and the data bank is put on their website for the use of the company making the appointment.

Who carries the risk of a bad appointment?

The company. The proviso to sub-section (1) is one sentence and it settles the question: responsibility for exercising due diligence before selecting a person from the data bank as an independent director lies with the company making such appointment.

That is the part most worth reading carefully. A data bank maintained by a notified body looks like an accreditation, and the proviso says it is not one. Nothing shifts to the maintainer, and a company cannot answer a later challenge to an appointment by pointing at the listing. The verification of a candidate's independence, qualifications and fit remains where it was before the data bank existed.

What does the shareholder actually see?

Sub-section (2) is the disclosure limb, and it produces the one artefact a member can read. The appointment of an independent director shall be approved by the company in general meeting as provided in section 152(2), which appointment of directors under section 152 covers, and the explanatory statement annexed to the notice of that meeting shall indicate the justification for choosing the appointee for appointment as an independent director.

Read that alongside the proviso to section 152(5), which requires the same explanatory statement to carry a statement that in the Board's opinion the person fulfils the conditions the Act specifies. The notice therefore has to do two different things: assert that the candidate qualifies, and explain why this candidate was chosen. The first is a compliance statement, the second is a reason, and a member comparing notices across companies will find the second varies far more than the first.

Sub-sections (3) and (4) leave the machinery to the rules. The data bank creates and maintains data of persons willing to act as independent director in accordance with such rules as may be prescribed, and the Central Government may prescribe the manner and procedure of selection of independent directors who fulfil the qualifications and requirements specified under section 149. Those rules are not reproduced here, and the section itself is printed in the India Code consolidation without an amendment footnote.

Where the databank shows up in a filing

Not directly, which is the practical point. The data bank is a website maintained by a notified body, not a filing made by the company. What reaches a reader of the company's disclosures is the explanatory statement under sub-section (2), the Board's opinion on independence under the proviso to section 152(5), and the declaration of independence the director gives under section 149(7). The terms of the appointment itself are governed by Schedule IV, the code for independent directors, whose paragraph IV(6) requires the letter of appointment's terms and conditions to be posted on the company's website.

Where this sits in the disclosure picture

• Independent director under section 149 covers the independence tests section 150(1) is made subject to.
• Schedule IV, the code for independent directors covers the appointment terms and the separate meeting the appointee joins.
• Appointment of directors under section 152 covers section 152(2), the general-meeting approval section 150(2) points to.
• The nomination and remuneration committee covers the committee that identifies and recommends board candidates.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.