Second Term, an Over-Cap Sitting Fee and Stock Options for an Independent Director

Defect 1 - the wrong organ approved it. A second term of an independent director requires approval of the shareholders by special resolution under Section 149(10); the board cannot grant it. The board resolution of 12 July is not a substitute, and the AGM is not a formality but the source of the appointment.

Defect 2 - the term has already begun on paper. Her first term ended on 29 June 2025. A resolution passed on 12 July cannot retroactively appoint her from 30 June. The correct mechanics are that the board appoints her as an additional director under Section 161(1), whereupon she holds office only until the ensuing general meeting, and the AGM then appoints her for the second term by special resolution. The explanatory statement must set out the terms, the NRC's recommendation and the justification.

Defect 3 - no NRC recommendation. Under SEBI LODR Regulation 19 the nomination and remuneration committee must identify persons qualified to become directors and recommend their appointment and removal to the board. A board that appoints a director with a recorded nil recommendation is skipping a mandatory governance step, and the omission will be visible in the corporate governance report.

Checks that should have been done: her databank registration must be current on the date of appointment (Section 150); her consent must be on record; her directorship count must be within the Section 165 ceiling of ten public companies; and the appointment must be filed in the prescribed form within 30 days.

Conclusion: the reappointment can be validly made, but only through board appointment as an additional director followed by a special resolution of shareholders at the 5 August AGM, with an NRC recommendation recorded before the board acts. The date gap between 30 June and the AGM must be acknowledged and regularised, not papered over.

The sitting fee is over the statutory ceiling. Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014 caps the sitting fee payable to a director for attending a meeting of the board or a committee at Rs 1,00,000 per meeting. A fee of Rs 2,00,000 per board meeting is beyond the cap and cannot be validated by a board resolution or even by shareholder approval; the excess is an unauthorised payment that the director may be required to refund. If the intent was to increase remuneration meaningfully, the legitimate route is a profit-linked commission within the Section 197 limits, approved by shareholders.

The stock options are prohibited outright. The proviso to Section 149(9) states that an independent director shall not be entitled to any stock option. Remuneration to an independent director is limited to fees, reimbursement of expenses and a profit-related commission approved by the shareholders. This is a statutory prohibition, so it is not cured by shareholder approval, by the NRC's blessing, or by labelling the grant an incentive. Accepting it would also undermine the director's independence in substance, quite apart from the illegality.

Disclosure consequences. Remuneration and commission to directors must be approved by shareholders and disclosed in the corporate governance report and the board's report. A payment made outside the approved framework is a disclosure failure as well as a compliance failure.

What the independent director should do: decline the stock options in writing, have the discussion minuted, vote against the fee exceeding the cap while supporting a compliant increase, and ask the NRC to place a proper remuneration policy before shareholders. Her own dissent is the evidence that she exercised independent judgement, and it protects her if the payments are later questioned.

Broader governance point: a board that proposes an unlawful incentive to the very director whose independence it relies on is signalling how it treats independence generally. That signal belongs in the NRC's discussion, not only in the minutes.

The hard stop. Under Section 149(11) an independent director may not hold office for more than two consecutive terms, that is, ten years. On completing the second term in 2030 she must step down and is not eligible for reappointment as an independent director until three years have elapsed, that is, until mid-2033. This is a statutory limit, not a matter for shareholder waiver.

What she may and may not do in the cooling-off period. The Act permits appointment as a managing or whole-time director only after the expiry of three years from ceasing to be an independent director, and the proviso restricts association with the company during the cooling-off. She may be considered for an ordinary non-independent directorship, but the board should ask whether that is consistent with the purpose of the ten-year cap or is simply tenure-washing under a different label, and it should explain its reasoning to shareholders.

Consequences of doing nothing. If the board wakes up in 2030 with no successor, it will be tempted to convert her into a non-independent director to keep her expertise, which invites proxy adviser and investor objection; or it will lose the seat entirely and fall below the Regulation 17 board-composition requirement until a replacement is found. Either outcome is a governance failure that was entirely foreseeable.

What the board should do now: (1) map every independent director's term end so that retirements are staggered rather than simultaneous; (2) charge the NRC with building a succession pipeline twelve to eighteen months before each expiry, using the databank to identify candidates with the right skills; (3) run a proper skills gap analysis for the board, since replacing a director is an opportunity to add capability rather than to clone a predecessor; (4) disclose the succession approach in the corporate governance report.

For Latha herself: plan the exit from year nine. A director who is seen to cling to a seat past the ten-year limit spends her remaining credibility defending her tenure instead of improving the board.