Market regulator SEBI has given a leg up to the institution of ‘independent directors’ in corporate boards, introducing an alternative method for the appointment and removal of such directors in situations where the special resolution does not get the requisite majority.

Legal and governance experts see the latest SEBI move as one that may temper the influence of promoters in the removal of independent directors. There have been several instances in recent years (such as Zee vs Invesco battle for appointment and removal of independent directors; Nusli Wadia removal an independent director from certain Tata companies five years back) where the legal framework around independent directors have under scrutiny and promoters’ influence in their remaining or removal from the Board coming in for public debate.

SEBI has now sought to reduce the influence of the promoters, giving an opportunity for those independent directors with the support of the majority of the minority shareholders to be appointed in listed company boards and discharge their role without any fear of being removed by the promoter.

Existing requirements

As per the existing requirements under SEBI (LODR) Regulations 2015, any appointment, re-appointment or removal of independent director is to be made through a special resolution. In a special resolution, the number of votes in favour must be three times the number of votes against it.

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If the special resolution for appointment or removal of an independent director does not get the requisite majority, SEBI has said that two thresholds will now be tested. One is threshold for ordinary resolution and the other is threshold for majority of minority shareholders.

If the resolution crosses these two thresholds, in the same voting process then such a resolution for appointment of the independent director would be “deemed” to be approved by shareholders.  

The same threshold will also be applicable for removal of an independent director appointed under this alternative mechanism, according to SEBI.

SEBI has brought amendments to its regulation around listing obligation and disclosure requirements to introduce flexibility in the approval process for appointment and /or removal of independent directors.

For this purpose, a Proviso has been introduced in LODR which states “Provided that where a special resolution for the appointment of an independent director fails to get the requisite majority of votes but the votes cast in favour of the resolution exceed the votes cast against the resolution and the votes cast by the public shareholders in favour of the resolution exceed the votes cast against the resolution, then the appointment of such an independent director shall be deemed to have been made …”.

In this case, public shareholders, according to experts, would mean non-promoter shareholders.


S N Ananthasubramanian, former President of ICSI, said the latest initiative by SEBI to introduce an alternative mechanism for appointment or removal of independent directors is relevant in the current times. “It endeavours to temper the perceived influence of promoters in the identification, selection and appointment or removal of such directors from corporate boards,” he said.

The processes associated with identification, selection , appointment and removal of independent directors is sought to be strengthened by SEBI both in form and in substance, Ananthasubramanian added.

Sujjain Talwar, Co-founding Partner, Economic Laws Practice, said the latest SEBI move is clearly intended to benefit the minority shareholders and reduce the influence of promoters in the removal of independent directors.

Some tweaks may be needed in the regulations as it is the Nomination and Remuneration Committee (NRC) that holds the key to appointment of independent directors, he said.

“SEBI should look at permitting independent directors to have more ‘skin in the game’ so that they are able to play the role of challenging the CEO and management on financial outcomes for the company. For example stock options to independent directors”, Talwar added.