Model Terms and Conditions for Appointment of Independent Director

[Pursuant to the provisions of Schedule IV to the Companies Act, 2013]

Schedule IV to the Companies Act, 2013 provides for the ‘Code for Independent Directors’. The Code is a guide to professional conduct for independent directors. Adherence to these standards by independent directors and fulfilment of their responsibilities in a professional and faithful manner will promote confidence of the investment community, particularly minority shareholders, regulators, and companies in the institution of independent directors.

The broad terms and conditions of appointment of Independent Directors are reproduced hereunder:

Terms of Appointment

• The appointment as a Non-Executive Independent Director on the Board of Directors of Shivalik Small Finance Bank Limited shall be for a fixed period, during which they shall not be liable to retire by rotation. Further, pursuant to the provisions of the Banking Regulation Act, 1949, no Director shall hold office continuously for a period of eight years and accordingly, they shall be eligible for reappointment for one more term upon successful completion of first term.
• The term “Independent Director” should be construed as defined under the Companies Act, 2013.
• The appointment is subject to the provisions of the Banking Regulation Act, 1949, the Companies Act, 2013 (“Act”), the Articles of Association of the Company (“AOA”) and other rules, regulations and circulars prescribed by the Reserve Bank of India, as amended from time to time.
• If circumstances change, and the Independent Director believes that his/her independence may be in doubt, he/she should discuss this with the Chairman of the Company as soon as possible.
• Appointment process of independent directors shall be independent of the company management; while selecting independent directors the Board shall ensure that there is appropriate balance of skills, experience, and knowledge in the Board so as to enable the Board to discharge its functions and duties effectively.
• The appointment of independent director(s) of the company shall be approved at the meeting of the shareholders.
• The appointment of independent directors shall be formalised through a letter of appointment, which shall set out
  • the term of appointment;
  • the fiduciary duties that come with such an appointment along with accompanying liabilities,
  • provision for Directors and Officers (D and O) insurance, if any;
  • the Code of Business Ethics that the company expects its directors and employees to follow;
  • the list of actions that a director should not do while functioning as such in the company; and
  • the remuneration, mentioning periodic fees, reimbursement of expenses for participation in the Boards and other meetings and profit related commission, if any
• The appointment is subject to the maximum permissible Directorships that an individual can hold as per the provisions of the Companies Act, 2013. Pursuant to Section 165 of the Companies Act, 2013, no person shall hold office as a Director in more than twenty companies at the same time out of which maximum number of public companies in which a person can be appointed as a director shall not exceed ten.
• Notwithstanding the other provisions of the terms and conditions of the appointment of the Independent Director, the appointment may be terminated with or without cause at any time by the Company with immediate effect, in accordance with the Companies Act, 2013 and Rule and Regulations made thereunder and the Company’s Articles of Association or, as applicable, or upon the resignation of the Independent Director, or the Board of Directors (excluding the concerned Independent Director) is of opinion that the continued appointment is not in the interest of the Company. Upon such termination or resignation of the appointment for any reason, the Independent Director shall not be entitled to any damages for loss of office and no fee will be payable in respect of any unexpired portion of the term of the appointment or any damages whatsoever. Upon such termination or resignation, the Independent Director will have to undertake to sign all appropriate paperwork that the Company may require.

Appointment on Committees of Board of Directors

The Board of Directors may, if it deems fit, invite Independent Director for being appointed on one or more existing Board Committees or any such Committee(s) that is set up in the future as Chairman or Member which will be covered in a separate communication setting out the relevant committee's terms of reference and any specific responsibilities.

Code of Conduct

• As a Non-Executive Director, Independent Directors are requested to endeavour to bring objectivity and independence of view to the Board’s discussions and decision making and also to help the Board in taking effective and informed decisions in relation to the Bank’s strategy, planning, performance appraisal, risk management, governance, etc. and also in ensuring highest standards of financial integrity and corporate governance.
• Role and duties will be those that are normally required from a Non-Executive Independent Director under the Companies Act, 2013.
• Independent Directors shall abide by the ‘Code for Independent Directors’ as outlined in Schedule IV of Section 149(8) of the Companies Act, 2013, and duties of Directors as provided in the Companies Act, 2013 (including Section 166).
• In addition, as an Independent Director of the Bank, he/she will have to comply with the provisions of the Banking Regulation Act, 1949 and other rules, regulations and circulars prescribed by the Reserve Bank of India.
• As an Independent Director of the Bank, he/she shall observe following Professional Conduct:
  • uphold ethical standards of integrity and probity;
  • act objectively and constructively while exercising your duties;
  • exercise your responsibilities in a bonafide manner in the interest of the Company;
  • devote sufficient time and attention to your professional obligations for informed and balanced decision-making;
  • not allow any extraneous considerations that may vitiate your exercise of objective independent judgment in the paramount interest of the Company as a whole, while concurring in or dissenting from the collective judgment of the Board in its decision-making;
  • not abuse your position to the detriment of the Company or its shareholders or for the purpose of gaining direct or indirect personal advantage or advantage for any associated person;
  • refrain from any action that could lead to a loss of your independence status;
  • ensure that if circumstances arise under which you may lose your independence status, you shall immediately inform the Board accordingly;
  • assist the Company in implementing the best corporate governance practices.

Responsibility, Role, and Function

Responsibilities:

An Independent Director of the Bank will have the same responsibilities as that of any other Directors of the Bank. The Board of the Bank as a whole is collectively responsible to provide direction and supervision to the Bank.

Role as an Independent Director

An Independent Director shall:

• help in bringing an independent judgment to bear on the Board’s deliberations especially on issues of strategy, performance, risk management, resources, key appointments and standards of conduct;
• bring an objective view in the evaluation of the performance of board and management;
• scrutinize the performance of management in meeting agreed goals and objectives and monitor the reporting of performance;
• satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible;
• safeguard the interests of all stakeholders, particularly the minority shareholders;
• balance the conflicting interest of the stakeholders;
• determine appropriate levels of remuneration of executive directors, key managerial personnel and have a prime role in appointing and where necessary recommend removal of executive directors and key managerial personnel;
• Moderate and arbitrate in the interest of the Company as a whole, in situations of conflict between management and shareholder’s interest.

Duties

As an Independent Director, he/she shall:

• undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity with the Company;
• strive to attend all meetings of the Board of Directors and of the Board committees of which they are a chairperson or member;
• participate constructively and actively in the committees of the Board in which they are chairperson or member;
• strive to attend the general meetings of the Company;
• where they have concerns about the running of the Company or a proposed action, ensure that these are addressed by the Board and, to the extent that they are not resolved, insist that their concerns are recorded in the minutes of the Board meeting;
• keep themselves well informed about the Company and the external environment in which it operates;
• not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board;
• pay sufficient attention and ensure that adequate deliberations are held before approving related party transactions and assure themselves that the same are in the interest of the Company;
• ascertain and ensure that the Company has an adequate and functional vigil mechanism, if any, and to ensure that the interests of a person who uses such mechanism are not prejudicially affected on account of such use;
• report concerns about unethical behaviour, actual or suspected fraud or violation of the code of conduct or ethics policy, if any;
• acting within their authority, assist in protecting the legitimate interests of the Company, shareholders and the employees;
• not disclose confidential information, including commercial secrets, technologies, advertising and sales promotion plans, unpublished price sensitive information, unless such disclosure is expressly approved by the Board or required by law.

Time Commitment

• The Board meets at least four times a year. The Committee Meetings shall be held at such intervals as may be required. Independent Directors are requested to attend Meetings of the Board and Committees on which you are a member, or you may be appointed as Member. Independent Directors are also requested to attend General Meetings, meet occasionally with major shareholders, management, staff, and professional advisors and to devote such time to their duties, as appropriate for them to discharge their duties effectively and independently.
• At certain times it may be necessary to convene additional Board, Committee or Shareholders’ meetings, at shorter notice if need be and it is expected that the Independent Director will make every effort to attend the same.
• By accepting this appointment, he/she undertake that, taking into account all other commitments you may have, Independent Director are able to, and will, devote sufficient time to their duties as a Non-Executive Independent Director.

Induction, Training and Development

The Bank conducts training and knowledge sessions for its Directors, which may include all or any of the following:

• Meeting with Key Management;
• Visit to Bank’s Offices;
• Other facilities as may be deemed necessary from time to time;

The Bank recommends that Independent Director to attend all these programs and sessions which will help broaden their understanding of the Bank, its business, and the environment and markets in which it operates.

Liabilities

An Independent Director shall be held liable, in respect of such acts of omission or commission by Company which had occurred with their knowledge, attributable through Board processes, and with their consent or connivance or where they had not acted diligently.

Director’s Liability Insurance

The Bank has in place a Directors’ and Officers’ Liability Insurance Policy, which will also be applicable to an Independent Director from the date of their appointment. The copy of the policy can be furnished on request to the Company Secretary.

Remuneration

• The Commission and Sitting Fees would be payable for attending the Board Meeting and/or Committee Meeting as approved by the Board and/or Shareholders in compliance with the provisions of the Companies Act, 2013, the Banking Regulation Act, 1949 and other rules, regulations and circulars prescribed by the Reserve Bank of India as amended from time to time.
• In case any Director joins the Board during the financial year, then the amount of commission for the various roles outlined above shall be paid proportionately.
• Pursuant to the provisions of the Companies Act, 2013, you will not be entitled to any stock options.

Reimbursement Of Expenses

• In addition to the above, an Independent Director will be paid for the travelling expenses including airfare, hotel stay and car on rental and other incidental expenses incurred by you in the performance of their role and duties and for attending the Board/Committee Meetings in person or through video conferencing, or any other audio-visual mode, as may be prescribed in the Companies Act, 2013.
• In case, an Independent Director has any other pecuniary relationship, as defined in the Companies Act 2013 apart from the above remuneration, the same shall be immediately disclosed to the Board.

Evaluation

• The Bank will carry out an evaluation of the performance of the Board as a whole, Board Committees and Directors on an annual basis. Their appointment and re-appointment on the Board shall be subject to the outcome of the yearly evaluation process.
• Evaluation of each Director shall be done by all the other Directors. The criteria for evaluation shall be determined by the Nomination & Remuneration Committee.
• However, the actual evaluation process shall remain confidential and shall be a constructive mechanism to improve the effectiveness of the Board / Committee. If, in the interim, there are any matters which cause concern about their role, he/she should discuss them with the Chairperson as soon as it is appropriate.

Resignation or Removal

• The Resignation and removal of an Independent Director shall be in accordance with the applicable provisions of the Companies Act 2013, the Banking Regulation Act, 1949 and other rules, regulations and circulars prescribed by the Reserve Bank of India as amended from time to time.
• An independent director who resigns or is removed from the Board of the company shall be replaced by a new independent director at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy, whichever is later.
• Where the company fulfils the requirement of independent directors in its Board even without filling the vacancy created by such resignation or removal, as the case may be, the requirement of replacement by a new independent director shall not apply.
• If at any stage during the term, there is a change that may affect the status as an Independent Director as envisaged in Section 149 (6) of the Companies Act 2013 or if applicable, Independent Director fails to meet the criteria for Independence under the provisions of the Listing Regulations, he /she shall immediately on such change vacate the office of an ‘Independent Director’

Re-appointment:

The re-appointment of an independent director shall be on the basis of report of performance evaluation.

Separate Meetings:

• The independent directors of the company shall hold at least one meeting in a year, without the attendance of non-independent directors and members of management;
• All the independent directors of the company shall strive to be present at such Meeting;
• The meeting shall:
  • review the performance of non-independent directors and the Board as a whole;
  • review the performance of the Chairperson of the company, taking into account the views of executive directors and non-executive directors;
  • assess the quality, quantity, and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties.

Disclosure of Interest

• The Bank is required to include in its Annual Accounts a note of any material interest that a Director may have in any transaction or arrangement that the Bank has entered into. Such interest should be disclosed not later than when the transaction or arrangement comes up at a Board meeting, so that the minutes may record such director’s interest appropriately and the Bank’s records are updated. In terms of the provisions of the Companies Act, 2013, directors are required to disclose their interest in other entities in the prescribed format at the beginning of the financial year and as and when there is change in interest.
• During the term of the appointment, an Independent Director are required to submit all statutory disclosures/confirmations required to be made under applicable laws including but not limited to:
  • Annual / Event based disclosures under the Companies Act, 2013.
  • Disclosures under Listing Agreement with the Stock Exchanges, upon listing.
  • Disclosures under the Banking Regulations Act and under RBI circular, notifications etc.
  • Disclosures under Prevention of Insider Trading Code.

Co-operation

In the event of any claim or litigation against the Company, based upon any alleged conduct, act or omission on Independent Director part during their term, he/she shall agree to render all reasonable assistance and cooperation to the Company and provide such assistance and documents as are necessary and reasonably requested by the Company or any regulatory/statutory authority.

Confidentiality

• Any information acquired during the term as director of the Company is confidential and should not be released, either during their appointment or following termination (by whatever means) to third parties without prior clearance in writing from the Chairman, unless required by law or by any regulatory body. On the conclusion of their tenure or following termination (by whatever means), the Director will return any property and assets of the Company in their possession including information and data. Independent Director will also not retain any copy of the information and data unless approved in writing by the Chairman or the Company Secretary.
• Attention is also drawn to the requirements under both legislation and regulation as to the disclosure of price sensitive information. Consequently, he/she should avoid making any statements that might risk a breach of these requirements without prior clearance from the Chairperson or Company Secretary.

Conflict of Interest

• It is accepted and acknowledged that Independent Director may have business interests other than those of the Company. As a condition to the appointment /re-appointment, he/she is required to declare the directorships, appointments and interests to the Board in writing in the prescribed form and also keep the information updated as and when required. They are also required to provide such other information/declaration/documents pertaining to their interest in other entities as may be required pursuant to the applicable statutes.
• In the event that the judgment of Independent Director, circumstances seem to have changed and which might give rise to a conflict of interest or, wherever applicable, circumstances that might lead the Board to revise its judgment on the Independence of Director, the same should be disclosed to the Board immediately. During their appointment / re-appointment, Independent Director should not get involved (whether directly or indirectly) in any Company which might reasonably be considered to compete or have a significant relationship with the said Company without the prior written approval of the Board.
• Your attention is invited to Section 20 of Banking Regulation Act, 1949 and Master Circular regarding loans and advances to Director or his / her relatives as updated from time to time by the Reserve Bank of India. You are requested to ensure compliance of the same at all times.

Governing Law

• Appointment of Independent Directors shall be governed by the laws of India and their engagement shall be subject to the jurisdiction of the courts in Delhi.
• The terms and conditions of appointment of Independent Director shall be open for inspection at the registered office of the Company by any member during normal business hours.
• In line with the provision of clause IV sub clause 6 of Schedule IV of the Companies Act, 2013, the terms and conditions of appointment of Independent Director shall be available to the public and also be placed on the website of the Bank.
• The terms of re-appointment of Independent Director are subject to the provisions of the Banking Regulation Act and guidelines issued by the RBI, Companies Act, 2013, Listing Regulations, Articles of Association of the Company and other laws as may be applicable from time to time. In case of any inconsistency between the statutory provisions and as provided herein, the statutory provisions will prevail over the contents of this and the terms of this annexure shall stand amended automatically to that extent.
• The terms of re-appointment including the terms contained in this letter herein are governed by the Indian Laws and accordingly shall be subject to the exclusive jurisdiction of the courts in Delhi.