Section 149(6) of the Companies Act, 2013 lays down the qualifications that a person needs to possess before being appointed as an independent director in Indian companies. The provision becomes very relevant so that independent directors are always impartial and under no relationship or situation that may defeat their position of impartiality. Strong corporate governance and protection of the interests of all stakeholders become possible if such criteria are followed while appointing independent directors in the company.

Detail Analysis of Section 149(6) of Companies Act 2013

An independent director in relation to a company means a director other than a managing director, a whole-time director, or a nominee director and he shall be having the following qualifications:

1. Integrity and Competency: 149(6) (a)

The board should satisfy itself that the person is of good character and possesses the requisite skills and experience. In this requirement, the aspect of integrity and the ability to contribute meaningfully to the deliberations of the board are appreciated.

2. Non-Promoter Status: 149(6) (b)

(i) At any time, either he should not be or should not have been a promoter of the company or its holding, subsidiary, or associate company. This requirement serves to prevent possible conflicts arising from vested interests in the formation or control of the company.

(ii) He should not be related to the promoters or directors of the company, holding, subsidiary, or associate company. This provision is expected to prevent blood relations from reaching the director's desk and impinging on his impartiality.

3.  No pecuniary relationships: 149(6)(c)

Neither should he have had any pecuniary connection with the company, its holding subsidiary or associate company, or their promoters or directors during the two immediately preceding financial years or the current financial year. The payment by way of remuneration as a director and all transactions not exceeding 10 percent of the individual's total income are exempt. This section guards the interest of the director against financial dealings.

4.Restrictions upon the Financial Dealings of Relatives: 149(6)(d)

Neither he nor any other relatives of his received from the company, its holding, subsidiary, or associate company, or their promoters or directors, collectively, transactions involving money that amounted to 2% or more of the gross turnover or total income of the company or ₹50 lakh, whichever is lower, during either of the two preceding or the current financial year. The theme of financial neutrality of the director is now extended to his immediate family members.

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5. Employment and Professional Associations: 149(6)(e)

Neither he nor any of his relatives,

(i) Shall have been key managerial persons or employees of the company or its holding, subsidiary, or associate company during any of the three financial years immediately preceding the financial year in which such appointment is proposed.

(ii) They shall not have been employees, proprietors, or partners in any of the three immediately preceding financial years of:

• A. Firm of auditors, company secretaries in practice, or cost auditors of the company or its holding, subsidiary, or associate company.

• B. Any legal or consulting firm that has carried on transactions with the company, its holding, subsidiary, or associate company amounted to 10% or more of the firm's gross turnover.

These provisions eliminate associations that may compromise the objective auditing based on previous professional connections

(iii) Shareholding Limitations: Its immediate relatives and that of the person shall not hold 2% or more of the voting power in the company. This will ensure that sizable shareholding does not influence the decision-making of the director.

(iv) Association with Non-Profit Organizations: The individual must not be a Chief Executive or a director of any other nonprofit organization whose income is 25 percent or more from the corporation, its promoters, directors, or its holding, subsidiary, or associate company, or whose aggregate voting power amounts to 2 percent or more of the total voting power in the company. This removes indirect influence through charitable group associations.

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6. Additional Requirements: 149(6)(f)

He shall have other qualifications as are prescribed. This would permit further criteria for suitability in the role of the director.

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In Conclusion, 

The existence of Section 149(6) of the Companies Act of 2013 is a necessary determinant for the role and standards of independent directors in corporate governance. The imposition of stringent eligibility criteria instituted by this provision ensures that independent directors are careful to maintain the integrity of their independence, objectivity, and absence of bias in matters related to the companies.

The above standards of a corporate governance framework would protect shareholder interests and promote confidence in company practice by fostering greater transparency and accountability. Being the case where companies strive to meet such legal requirements, the board oversight and corporate governance standards are upheld by the presence of qualified independent directors. Section 149(6) also contains an important stipulation relating to independence and exemplary conduct as a basis to develop responsible management in the Indian corporate world.

FAQs on Section 149(6) of the Companies Act, 2013

Q1. What is the purpose of Section 149(6) of the Companies Act, 2013?

Section 149(6) defines the qualifications and criteria for an individual to be appointed as an independent director in a company. This ensures that such directors are free from any relationships or circumstances that could compromise their impartiality, thereby enhancing corporate governance.

Q2. Who is considered an independent director under this section?

An independent director is someone who is not a managing director, whole-time director, or nominee director, and who meets specific criteria related to integrity, expertise, lack of pecuniary relationships, and independence from the company's promoters and management.

Q3. Why is it important for independent directors to have no pecuniary relationships with the company?

The absence of pecuniary relationships ensures that independent directors can make unbiased decisions without any financial conflicts of interest, thereby safeguarding the interests of shareholders and maintaining trust in the company's governance.

Q4. How does Section 149(6) contribute to corporate governance?

By setting stringent criteria for independent directors, Section 149(6) promotes transparency, accountability, and impartiality in the board's decision-making processes, leading to better oversight and ethical management of the company.

Q5. Are there any restrictions on the relatives of independent directors under this section?

Yes, the section stipulates that the relatives of an independent director should not have significant financial dealings or relationships with the company, its promoters, or directors, to prevent indirect conflicts of interest and ensure the director's independence.