Who counts as an independent director under section 149?
A plain-language guide to section 149 of the Companies Act, 2013: Board composition, the one-third rule for listed public companies, the independence tests in section 149(6), appointment and tenure, Schedule IV duties, and the separate SEBI LODR checks for listed entities.
In this guide
An independent director under section 149(6) of the Companies Act, 2013 is a director other than a managing, whole-time or nominee director who clears the statutory relationship and pecuniary tests. Every listed public company must have at least one-third of its total directors as independent directors under section 149(4). Each such director follows Schedule IV and may serve up to two consecutive five-year terms.
What does section 149 do?
Section 149 sets the basic composition of a company's Board and the statutory framework for independent directors. It covers the minimum number of directors for different company types, the requirement for a resident director, the requirement for an independent director in listed public companies, appointment, tenure and the Code for Independent Directors in Schedule IV.
For a company secretary or compliance officer, the section is not a single appointment rule. It is a continuing composition test. Changes in Board size, a director's relationship with the company, or a new listing obligation can alter whether the Board remains compliant.
How many directors must a company have at minimum?
Section 149(1) of the Companies Act, 2013 sets a floor of three directors for a public company, two for a private company and one for a One Person Company, with a maximum of fifteen that a special resolution can exceed. Section 149(3) additionally requires at least one director who stayed in India for 182 days or more during the financial year.
Which companies need independent directors?
Every listed public company must have at least one-third of the total number of directors as independent directors under section 149(4). The Central Government can prescribe a minimum number for classes of public companies. Those classes and their conditions must be checked in the applicable rules.
| Company or event | Section 149 checkpoint |
|---|---|
| Listed public company | At least one-third of total directors must be independent directors |
| Prescribed class of public company | Check the Companies Rules for its independent-director requirement |
| Board expansion or resignation | Recalculate the one-third composition immediately |
| Listed entity | Also check the SEBI LODR Board-composition rules |
The one-third figure is based on the total number of directors, and any fraction rounds up to the next whole number under the explanation to section 149(4). A vacancy, resignation or additional executive appointment can therefore create a composition problem even when the number of independent directors has not changed.
Which unlisted public companies need independent directors?
Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 requires at least two independent directors in an unlisted public company with paid-up share capital of ₹10 crore or more, turnover of ₹100 crore or more, or aggregate outstanding loans, debentures and deposits of ₹50 crore or more. The figures are tested on the last audited financial statements.
How is independence tested under 149(6)?
Section 149(6) defines an independent director as a director other than a managing director, whole-time director or nominee director who meets the stated conditions. The Board must form an opinion that the person has integrity and relevant expertise and experience. The statutory conditions then test the person's relationship with the company and its group.
The detailed tests cover promoter status, family relationships, past employment, pecuniary relationships, shareholding and association with firms or entities connected with the company. Do not turn the test into a biography. Use the exact wording in section 149(6), then obtain declarations and evidence for the facts that matter.
What are the money limits inside section 149(6)?
Section 149(6)(c) bars any pecuniary relationship with the company, its holding, subsidiary or associate company, other than remuneration as a director, during the two immediately preceding financial years or the current one. Rule 5 of the Companies (Appointment and Qualification of Directors) Rules, 2014 sets the relative transaction limit at 2% or more of gross turnover, or ₹50 lakh, whichever is lower. Section 149(6)(e)(iii) adds a 2% voting-power cap on the director and relatives together.
How long can an independent director serve?
Up to two consecutive terms of five years each, so ten years, under sections 149(10) and 149(11) of the Companies Act, 2013. The first term runs for up to five consecutive years. A second term of up to five years needs a special resolution and disclosure in the Board's report.
After two consecutive terms, reappointment is possible only after a three-year cooling-off period, and during that period the person must not be associated with the company directly or indirectly in any capacity. An independent director is selected from the databank under section 150(1) and appointed by the company in general meeting, with the explanatory statement recording why the Board considers the person qualified.
What does Schedule IV require?
Schedule IV to the Companies Act, 2013 is the Code for Independent Directors, and section 149(8) makes it binding on the company and the director alike. It sets standards of professional conduct, the role, functions and duties, appointment and resignation terms, performance evaluation, and at least one meeting a year of the independent directors alone without management or non-independent directors present.
In practical terms, the company should give an independent director enough information and time to question financial reporting, risk management, management performance and related decisions. Attendance alone is not the measure. The Schedule expects an independent judgment on Board matters.
Why must listed entities also check LODR?
A listed entity must apply the SEBI LODR Regulations, 2015 alongside section 149, because regulation 17 can demand a stricter Board than the one-third floor. Regulation 17(1) requires at least six directors and, where the chairperson is a non-executive promoter, at least half the Board independent. Regulation 25(6) gives three months, or the next Board meeting, to fill a vacancy.
Keep one Board composition calendar, but record the statutory basis for each requirement separately. That makes it easier to see whether a change has an MCA consequence, a SEBI consequence, or both.
How do I check Board composition today?
- Read section 149 with sections 150 and 152, plus Schedule IV.
- Check rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 for the ₹10 crore, ₹100 crore and ₹50 crore public-company thresholds.
- Review the director's declarations against the detailed section 149(6) criteria, including the 2% voting-power cap.
- For a listed entity, check regulation 17 and regulation 25 of the SEBI LODR Regulations, 2015 and the stock-exchange requirements.
- Update the Board calendar whenever a director joins, leaves or changes a relevant relationship.
Why do section 149 breaches happen?
- Counting independent directors once a year instead of after every Board change.
- Relying on a declaration without checking the section 149(6) relationship tests.
- Assuming a second term is automatic when section 149(10) needs a special resolution.
- Ignoring the three-year cooling-off restriction after two consecutive terms.
- Applying only section 149 to a listed entity and overlooking regulation 17 of the SEBI LODR Regulations, 2015.
- Treating Schedule IV as a general statement rather than a working code of conduct.
Where do section 149 changes appear?
Board-composition rules sit across the Companies Act, MCA rules and SEBI regulations. Complied AI keeps MCA updates and SEBI updates close to the official documents, which helps compliance teams spot the source change that requires an appointment or calendar update. Read section 149 next to the notification when you need the exact independence wording.
Practical checks
Common questions
How many independent directors must a listed public company have?
Section 149(4) of the Companies Act, 2013 requires every listed public company to have at least one-third of its total number of directors as independent directors. A nine-member Board therefore needs three. Any fraction is rounded up to the next whole number under the explanation to section 149(4). A listed entity must also test regulation 17 of the SEBI LODR Regulations, 2015, which can demand more.
Who can be an independent director under section 149(6)?
An independent director under section 149(6) is a director other than a managing, whole-time or nominee director whom the Board considers to have integrity and relevant expertise. The person must not be a promoter, must have had no pecuniary relationship other than remuneration in the two preceding financial years, and must not hold, with relatives, more than 2% of the voting power.
What is the maximum tenure of an independent director?
An independent director may hold office for up to two consecutive terms of five years each under section 149(10) and 149(11) of the Companies Act, 2013, so ten years in all. A second term needs a special resolution. After two consecutive terms, reappointment is possible only after a three-year cooling-off period with no association with the company in that gap.
Does Schedule IV apply to independent directors?
Yes. Section 149(8) of the Companies Act, 2013 requires every company and its independent directors to comply with Schedule IV. The Schedule sets a code of professional conduct, the role and duties, appointment and resignation terms, performance evaluation, and one separate meeting of the independent directors each year without management present.
Our unlisted private company has one nominee director from an investor. Does that count towards the one-third?
No. A nominee director is expressly excluded from the definition of an independent director in section 149(6) of the Companies Act, 2013. An unlisted private company is also outside the one-third requirement in section 149(4), which binds listed public companies. Check rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 for the prescribed public-company classes.
My relative supplies goods to the company. Does that break my independence?
It can. Section 149(6)(e) of the Companies Act, 2013 tests whether a relative has, or had in the two preceding financial years, a pecuniary relationship with the company. Rule 5 of the Companies (Appointment and Qualification of Directors) Rules, 2014 puts the relative transaction limit at 2% or more of gross turnover, or ₹50 lakh, whichever is lower.
An independent director resigned mid-year. How long do we have to fill the seat?
Section 149(4) composition must be restored, and for a listed entity regulation 25(6) of the SEBI LODR Regulations, 2015 gives three months from the vacancy, or the next Board meeting, whichever is later. Section 161(4) of the Companies Act, 2013 lets the Board fill a casual vacancy, with member approval at the next general meeting.
Do we have to pick an independent director from the MCA databank?
Yes. Section 150(1) of the Companies Act, 2013 has an independent director selected from the databank maintained by the Indian Institute of Corporate Affairs, and rule 6 of the Companies (Appointment and Qualification of Directors) Rules, 2014 requires registration in it plus an online proficiency self-assessment test within two years of registration, with stated exemptions.
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How this guide was prepared
This guide is published by the Complied AI research desk. Its source list and stated position were checked against the official records shown below on 6 August 2026.
Automation, including AI, may assist research, drafting and structure. It does not replace the official record or amount to an independent professional review. Read our editorial standards and corrections policy.
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