Corporate governance as a practice hasbeen around in India since the time of Kautilya and his revered Arthashahtra. However,it is only now that such practices have come to gain prominence after the LPG reformsthe Indian economy saw in the 1990s. Today, it has become a topic of wide discussionand consideration for economists all over the world. With such discussion has comethe necessity for better governance practices all over the world. The premise thatthis paper is based on is that the whole edifice of good corporate governanceis dependent on the effectiveness of independent directors.
Independence ofBoard is important to make sure that the Board performs its role objectivelyand holds management accountable to company. The paper seeks to study the significanceof independent directors in ensuring corporate governance. Section 2(20) ofthe Companies Act, 2013 defines a company to mean “a company incorporated underthe Companies Act or under any previous company law.”Structurally, a company is aseparate legal body which has two different levels: i. the Members of the company i.e., eitherthe shareholders of the company, or the guarantors if the company.
ii. the directors elected to manage theday-to-day business of the company on behalf of the members, working as a collectivethrough the Board.The law does not require thedirectors to be members or vice versa. The Board of directors may delegate someof its powers to one or more directors and may appoint a Managing Director,subject to there being appropriate power to do so in the company’s constitution(i.e., articles of association).
1″Acompany director is a person appointed, usually by the members of a company, tomanage the company on their behalf. The term “director” has no specific meaningbut is defined under Section 2(1) of the Companies Act, as follows: ‘director'”includes any person occupying theposition of director by whatever name called”. Accordingly, a director isrecognised not merely by his or her title but principally by his or herfunction, which depends on the nature of the company.
The primary function ofthe directors is to manage2the business of the company on behalf of the members. The internal rules oncorporate governance and the duties of officers of the company are now codifiedin the Companies Act under Part 4 and Part 5. This means that a company neednot have extensive Articles in the constitution. However, if the company adoptsthe standard articles without any exclusions or modifications to the optionalprovisions as set out in those parts, all the provisions in the standardarticles, including the optional provisions apply to the company and to itsdirectors where relevant. The main legislative provisions concerning companydirectors under the Companies Act are set out under Part 4 in sections 128 to167 and under Part 5 in sections 219 to 255.”2Section 158, Companies Act.