MCA notifies for Appointment and Qualification of Independent Directors: Amendment Rules 2020

Soumya Bajpai

24 Aug, 2020

The Ministry of Corporate Affairs (MCA^[1]), has brought a new notification regarding the appointment and qualification of independent directors. It is notified that the Companies (Appointment and Qualification of Directors) Rules, 2014, have been now amended. These rules will be known as the Companies (Appointment and Qualification of Directors) Amendment Rules, 2020, which will come into force as on the date of their publication in the official gazette.

Amendment Rules, 2020 – Changes in conditions for databank of independent directors

The amendments are regarding Rule 6, which is related to “Creation and maintenance of databank of persons offering to become independent directors”. In the exercise of the powers provided by section 149 read along with section 469 of the Companies Act, 2013, the Central government has made the rules as follows:

• In sub-rule (1) substitution of word five months instead of three months– The individual who is appoint independent director is required, to apply online to institute for inclusion of his name in the databank, within a period of five months for the duration of either for 1 year or 5 years or for his lifetime. These steps will be taken from time to time till the director continues to hold the office of an independent director in any company.
• In sub-rule (4) first proviso– The individual who has the name in the data bank needs to pass the online proficiency self-assessment test within a period of one year from the date of inclusion of director’s name. But the individual shall not have to pass the online proficiency self-assessment test if he has served as the director or the key managerial personnel for the total period of not less than 10 years or who falls under any of the one or more of the following:
• In any listed public company
• Any unlisted company which has the minimum paid-up capital of Rs. 10 Crore or more,
• Lastly,  in any corporate body listed on a recognized stock exchange
• In sub-rule (4) second proviso– The word ‘companies’ is substituted with the words “companies or bodies corporate”.

Amendment Rules 2019

In the exercise of the powers provided by Section 149 read along with Section 469 of the Companies Act, 2013, the Central government has made the rules.

 The amendments are regarding Rule 6, which is related to “Creation and maintenance of databank of persons offering to become independent directors” which is known as Companies (Appointment and Qualification of Directors) Amendment Rules, 2019. It came into effect since 1^st December 2019.

In Rule 6, the following rules were with reference to Rules 2019:

• The following compliances are required by the eligible and willing person who has to be appointed as an independent director. These include:
• The individual who intends to get appointed as a director after the commencement of the company
• The individual who has been appointed as a director in the company

Such person shall apply online to institute for the inclusion of his name in the databank, within a period of three months from such commencement of the company for a period of either for 1 year or 5 years or for his lifetime. These steps will be taken from time to time until the director continues to hold the office of an independent director in a company as specified under sub-rule (2).

• Proviso- If the individual is not having a DIN number, he may also voluntarily be able to apply to institute for inclusion of his name in the databank.

Conclusion

The appointment and qualification of directors is essentially required for any of the company. The directors have the key role in the company as they act on behalf of the private company. Therefore, it is mandatorily required for the inclusion of the independent director of the company in the databank. The window was for three months in 2019 which is substituted with the five months in the amendment of 2020. Other major changes were that firstly, no director with the experience of more than 10 years is required to pass the online proficiency self-assessment test. Secondly, the word companies include the word bodies corporate from now as well.