CAN AN INDEPENDENT DIRECTOR BE APPOINTED FOR MORE THAN TWO TERMS? DOES IT IS IN VIOLATION OF SECTION 149(11) OF THE COMPANIES ACT, 2013?

 CAN AN INDEPENDENT DIRECTOR BE APPOINTED FOR MORE THAN TWO TERMS? DOES IT IS IN VIOLATION OF SECTION 149(11) OF THE COMPANIES ACT, 2013?

ROC, MUMBAI VS CLEAN MAX ENVIRO ENERGY SOLUTIONS LIMITED

FACTS OF THE CASE

CLEAN MAX ENVIRO had appointed an Independent Director for more than two consecutive terms, contrary to the statutory bar that permits only two consecutive terms followed by a mandatory cooling-off period of three years which is in violation of violation of section 149(11)

WHAT SECTION 149(11) OF CA 2013 REQUIRES?

An Independent Director (ID) can hold office for up to two consecutive terms of 5 years each with maximum continuous tenure: 10 years.

After completing two consecutive terms, a cooling-off period of 3 years is mandatory.

During this period, the person must not be associated with the company in any capacity (directly or indirectly). In other words , he should not be appointed as ID in any holding or subsidiary company.

Any continuation of ID —whether by re-appointment, change in title, or board resolution—cannot cure a statutory breach once the maximum tenure is crossed.

WHY DOES THE LAW RESTRICT TENURE OF INDEPENDENT DIRECTORS?

Because independence of the independent director erodes with prolonged association with the company. The longer a director remains, the higher the risk of familiarity, influence, and compromised objectivity—defeating the very purpose of an “independent” director.

OUTCOME

ROC, Mumbai held that excess tenure compromises the “independence” of an Independent Director.

It also viewed the lapse as a governance failure, not a procedural irregularity.

The Registrar of Companies, Mumbai, under the Ministry of Corporate Affairs, passed an adjudication order under section 454 of the Companies Act, 2013, imposing penalties for violation of section 149(11) on the company.

PENALTY OF ₹6 lakh

Company was penalised under Section 172 of the Companies Act, 2013 as Section 172 allows fines for contravention where no specific punishment is prescribed.

The default continued from 1 October 2022 until the director’s resignation on 9 July 2025, spanning 1,013 days.

The company voluntarily filed a suo-motu adjudication application and admitted the lapse as inadvertent.

Considering the prolonged default and inapplicability of small company relief under section 446B, ROC imposed the maximum penalty of ₹3 lakh on the company and ₹1 lakh each on the Company Secretary, CFO, and Managing Director.

LESSONS LEARNED

Although the company, being a private company, it was not mandatorily required to appoint an Independent Director. However , once appointed, it was bound by the limits prescribed under section 149(11).

R V SECKAR, FCS, LLB 79047 19295