Independent directors are meant to protect balance in a company — between management power and shareholder interest. But finding truly independent, competent professionals was never easy. Personal networks often outweighed merit. That’s where Section 150 of the Companies Act, 2013 stepped in.
This provision lays down the manner of selection of independent directors and maintenance of a central databank. It ensures transparency, credibility, and consistency in appointments. Instead of informal recommendations, companies must now follow a structured, government-backed process. Let’s walk through what Section 150 really means, how it works in practice, and why it matters far more than it appears on paper.
What Is Section 150 of the Companies Act, 2013?
At its core, Section 150 governs the selection and databank of independent directors.
It mandates that:
- Independent directors must be selected from an online databank
- The databank is maintained by a notified body
- The process is regulated, recorded, and transparent
In simple words, companies can no longer appoint independent directors casually. The law introduces a structured pool of eligible professionals.
Why Was Section 150 Introduced?
Before this section came into force, independence was often questionable.
I’ve personally seen:
- Former consultants becoming “independent” directors
- Long-time associates being rebranded as outsiders
- Appointments driven by comfort, not competence
Section 150 was introduced to:
- Reduce conflicts of interest
- Improve corporate governance
- Standardise director selection across companies
It brought objectivity into a space that was too subjective.
The Independent Directors’ Databank Explained
One of the most important features of Section 150 is the creation of a central databank.
Who Maintains the Databank?
The law states:
The database (databank) shall be created by any agency as prescribed by the government.
Currently, this function is carried out by a government-notified body (such as IICA).
Who Can Be Listed?
The databank includes:
- Professionals with expertise in law, finance, management, governance
- Individuals eligible under Section 149(6)
- Persons willing to act as independent directors
An independent director may be selected from a databank, not outside it.
Manner of Selection of Independent Directors
Section 150 doesn’t just talk about where to find directors — it defines how they should be chosen.
The Selection Process Involves:
- Accessing the official databank
- Reviewing experience, skills, and background
- Ensuring independence under Section 149
- Conducting due diligence
This lays down the detailed regulatory framework for selecting and appointing independent directors.
Does Listing in the Databank Mean Automatic Appointment?
No — and this is important.
Being listed:
- Does not guarantee appointment
- Does not bypass board scrutiny
- Does not override qualification checks
The databank is a starting point, not a shortcut.
Companies still retain:
- Discretion to assess suitability
- Responsibility to ensure legal compliance
Responsibilities of Companies Under Section 150
Once Section 150 is triggered, companies must ensure:
- ✅ Independent directors are chosen from the databank
- ✅ Their credentials are verified
- ✅ Appointment procedures are documented
- ✅ Disclosures are properly made
Failure here isn’t just procedural — it can question the validity of board decisions.
Responsibilities of Independent Directors
Independent directors themselves also carry obligations:
- Register on the databank
- Pass online proficiency self-assessment (where applicable)
- Keep profile updated
- Disclose changes in status
This dual responsibility strengthens accountability on both sides.
Practical Example (Seen Often)
A mid-size listed company once appointed an “independent” director through personal reference. During regulatory scrutiny, it emerged that the director:
- Was not registered in the databank
- Had undisclosed prior connections
The appointment had to be withdrawn. Board resolutions were revisited. All avoidable — if Section 150 had been followed from day one.
How Section 150 Improves Corporate Governance
Section 150:
- Encourages merit-based selection
- Reduces promoter dominance
- Protects minority shareholders
- Improves board credibility
It transforms independence from a label into a functioning safeguard.
Common Misconceptions About Section 150
Let’s clear a few myths:
- ❌ “Databank limits choices” → It expands qualified access
- ❌ “Only listed companies care” → Applicability depends on law and rules
- ❌ “Formal rule with no impact” → It directly affects board validity
Understanding this avoids compliance surprises.
Conclusion
Section 150 of the Companies Act, 2013 quietly but powerfully reshaped boardrooms in India. By mandating that independent directors be selected from a government-backed databank, it introduced transparency, fairness, and professionalism into corporate leadership.
It’s no longer about who you know, but who is qualified, independent, and accountable. And that shift — though subtle — makes all the difference.
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