Q: What are the steps to be followed for appointing an independent director ?

Ans: Steps to be followed for appointing an independent director are as follows: 

Step 1: Identification based on independence criteria

An independent director may be selected from a databank containing names, addresses and qualifications of persons who are eligible for this purpose. This databank is to be maintained by any entity authorized by the Central Government and will be uploaded on the Ministry of Corporate Affairs website. This is only for a facilitative purpose - a company is allowed to select any other person as independent director, provided the person meets.

Step 2: Shareholder approval

The appointment of independent Directors shall be approved at the meeting of the shareholders. The explanatory statement attached to the notice of the meeting shall include a statement that the independent Director proposed to be appointed fulfills the conditions mentioned in the Act.

Step 3: Issue of appointment letter by board and obtaining declaration from director

The appointment of independent directors shall be formalized through a letter of appointment which states the term of appointment, expectation of the board from the director and fiduciary duties and liabilities accompanying it, code of business ethics that the company expects its directors and employees to follow, list of actions that the directors should not do while functioning as such, the remuneration, periodic fees, reimbursements of expenses for participating in the board meetings etc.

Every independent director shall provide a declaration confirming that he/she has satisfied the entire criteria of independence. The necessary forms for the appointment shall be filed with the registrar of companies and the details entered in the register of directors and key managerial personnel.

Step 4: Publication of terms of appointment of the independent director

The terms and conditions for appointment of independent director shall be posted in the company's website.

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