Companies Act, 2017 — section 165

165. Certain provisions not to apply to directors representing special interests..—(1) Nothing in sections 158, 159,161, 162 or 163 shall apply to

(a)directors nominated by a body corporate or company or any other entity owned or controlled, whether directly or indirectly, by the Federal Government or as the case may be, a Provincial Government on the board of the company in which such body corporate or company or entity has made investment;

(b)directors nominated by virtue of investment made by the Federal Government or as the case may be, a Provincial Government or the Commission on the board; or

(c)directors nominated by foreign equity holders on the board or any other body corporate set up under a regional co-operation or other co-operation arrangement approved by the Federal Government.

(2)For the purpose of nominating directors referred to in clause (a), (b) and (c), the number of votes computed in the manner laid down in sub-section (5) of section 159 as are proportionate to the number of votes required to elect the director if they had offered themselves for election, shall stand excluded from the total number of votes available to the nominating body at an election of directors, which may be proportionate to their voting power required to elect directors at an election of directors of a company.

(3)A director nominated under sub-section (1) shall hold office during the pleasure of the nominating body. 166. Manner of selection of independent directors and maintenance of databank of independent directors.—(1) An independent director to be appointed under any law, rules, regulations or code, shall be selected from a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent directors, maintained by any institute, body or association, as may be notified by the Commission, having expertise in creation and maintenance of such data bank and post on their website for the use by the company making the appointment of such directors: Provided that responsibility of exercising due diligence before selecting a person from the data bank referred to above, as an independent director shall lie with the company or the Government, as the case may be, making such appointment.

(2)For the purpose of this section, an independent director means a director who is not connected or does not have any other relationship, whether pecuniary or otherwise, with the company, its associated companies, subsidiaries, holding company or directors; and he can be reasonably perceived as being able to exercise independent business judgment without being subservient to any form of conflict of interest: Provided that without prejudice to the generality of this sub-section no director shall be considered independent if one or more of the following circumstances exist

(a)he has been an employee of the company, any of its subsidiaries or holding company within the last three years;

(b)he is or has been the chief executive officer of subsidiaries, associated company, associated undertaking or holding company in the last three years;

(c)he has, or has had within the last three years, a material business relationship with the company either directly, or indirectly as a partner, major shareholder or director of a body that has such a relationship with the company. Explanation: The major shareholder means a person who, individually or in concert with his family or as part of a group, holds 10% or more shares having voting rights in the paid-up capital of the company;

(d)he has received remuneration in the three years preceding his/her appointment as a director or receives additional remuneration, excluding retirement benefits from the company apart from a director’s fee or has participated in the company’s stock option or a performance-related pay scheme;

(e)he is a close relative of the company’s promoters, directors or major shareholders: Explanation: “close relative” means spouse(s), lineal ascendants and descendants and siblings;

(f)he holds cross-directorships or has significant links with other directors through involvement in other companies or bodies not being the associations licenced under section 42;

(g)he has served on the board for more than three consecutive terms from the date of his first appointment, and for more than two consecutive terms in case of a public sector company, provided that such person shall be deemed “independent director” after a lapse of one term;

(h)a person nominated as a director under sections 164 and 165: Provided further that for determining the independence of directors for the purpose of sub-clauses (a), (b) and (c) in respect of public sector companies, the time period shall be taken as two years instead of three years. Further, an independent director in case of a public sector company shall not be in the service of Pakistan or of any statutory body or anybody or institution owned or controlled by the Government.

(3)The independent director of a listed company shall be elected in the same manner as other directors are elected in terms of section 159 and the statement of material facts annexed to the notice of the general meeting called for the purpose shall indicate the justification for choosing the appointee for appointment as independent director.

(4)No individual shall be selected for the data bank referred to in sub-section (1) without his consent in writing.

(5)The manner and procedure of selection of independent directors on the databank who fulfill the qualifications and other requirements shall be specified by the Commission.

(6)The requirements of sub-section (1)

(a)shall be deemed relaxed till such time a notification is issued by the Commission; and

(b)may be relaxed by the Commission on an application made by the company supported with the sufficient justification or the practical difficulty, as the case may be.