This article is written by Keshav Bhardwaj, pursuing Diploma in Companies Act, Corporate Governance and SEBI Regulations from LawSikho.com. Here he discusses “Initiative of the Ministry of Corporate Affairs for capacity building of Independent Directors”.

Introduction

The Ministry of Corporate Affairs has been regularly taking steps In regard to promoting corporate governance and removing corruption. The recent initiative of the Ministry of Corporate Affairs on October 22, via notification, asserted that now the board of directors has to provide the details of the independent directors. The data bank to be prepared in this regard. These are the websites on which the data bank is prepared: Independent Director’s Databank & Indian Institute of Corporate Affairs databank. The database of how many companies,  Independent Directors & Women Independent Directors has registered with daily Independent Directors registration prepared on these portals.

This notification came into effect on 01 December 2019 and for the existing Independent Director, it was compulsory to register till 29th February 2020. Recently, the last date for registration in data bank extends up to 5 months from the effective date 01 December 2019 via Notification dated 28th February 2020 Companies (Appointment and Qualification of Directors) Amendment Rules, 2020 by which now the last date to register in data bank is 30th April 2020.

As Independent Director outside the sphere of control, that’s why Independent Directors considered bringing trustworthiness. The recent corporate scams and IL&FS crisis create a lot of troubles in the corporate world by which in total 606 Independent Directors resign from the National Stock Exchange. In order to curb such activities and promote corporate literacy, the MCA has introduced an online proficiency self-assessment test which will be conducted by the Indian Institute of Corporate (IICA) for a period of one year from the date of inclusion of name in Data Bank.

Objectives behind this initiative for the Independent Directors

1. Empanelment of Independent Directors as well as the professional aspiring to become independent directors by developing a data bank. 
2. Enrich the required qualities by delivering E-Learning courses on topics like corporate governance, regulatory framework, financial prudence, and other related aspects. 
3. Provide a platform to the individuals to acquire knowledge with new skills, then apply in practice.
4. Create an ecosystem for individuals looking for opportunities or companies looking to appoint Independent directors.
5. Create and administer a verified database of existing and aspiring Independent Directors.
6. Enhance corporate governance and responsible business conduct.

What are the changes take place and rules introduced in this regard?

The changes take place in Companies (Appointment and Qualification of Directors), 2014 with Fifth Amendment rules, 2019 in the exercise of power offered by section 149 read with section 469 of Companies Act, 2013 and the Companies (Accounts) Amendment Rules, 2019 in the exercise of power offers by section 134 read with section 469 of the Companies Act, 2013. 

The rules introduced are the Companies (Creation and Maintenance of data bank of Independent Directors) Rules, 2019 in the exercise of power offered by section 150 read with section 469 of the Companies Act, 2013.

Recent change Notification dated 28th February 2020 for Companies (Appointment and Qualification of Directors) Amendment Rules, 2020 

In the Companies (Appointment and Qualification of Directors), 2014 with Fifth Amendment rules, 2019, for rule 6, the following rule shall be substituted, specifically:-

6. Compliances to be entailed by a person qualified and eager to be appointed as an independent director:-

1. Every Individual-

(a) who has been designated as an Independent Director in the company, on the date of commencement of the given rule; or 

(b) who purpose to be designated as an independent director in a company after such commencement, shall before the appointment,

applying to the data bank institution for the involvement of his name in the data bank for a term of one year or five year or a lifetime, and time to time take steps as defined in sub-rule (2), till he keeps on hold the independent director office in any company:

Subject to the provision, any individual, also individual not having Director Identification Number (DIN) may apply for the involvement of his name in the data bank. 

2. Every individual whose name included in data bank shall file an application for renewal for an additional term of one year or five years or for a lifetime term, within the period of third days from the date of addition of his name in the data bank, if not follow, the name shall be expelled from the data bank.

Subject to the provision, no application for renewal to be filed in case of lifetime subscription for the involvement of his name in the data bank.

3. Individual Director required to submit a proclamation of compliance to the Board under sub-rule (1) & sub-rule (2), every time he submits relation under sub-section (7) of section 149 of the Act.

4. Every individual whose name is enrolled has to pass the online proficiency self-assessment test carried on by the institute within the period of one year, in case failing, the name shall be removed:

Subject to this provision, exempted any individual who has served for the period of not less than ten years on the date of the involvement of his name in the databank or key managerial personnel in a listed public company or in case of an unlisted public company having a paid-up share capital of rupees ten crores or more shall not be obliged to pass the online proficiency test.

Subject to the provision further for the calculation of the period of ten years, any term for which an individual serving as a director or as key managerial personnel in two or more at the same time shall be counted only once.

Explanation: For the purpose of the given rule, –

1. The expression “institute” referred to the ‘Indian Institute of Corporate Affairs at Manesar, Haryana’ referred under subsection (1) of section 150 of the Companies Act, 2013 as Institute for the Creation and Maintenance of Data Bank of Independent Directors;

2. An individual who has secured 60 per cent or more in aggregate in the online self proficiency self-assessment test considered to have passed the test;
3. There shall be no restriction on the number of attempts an individual may take for passing the test. 

The Companies (Creation and Maintenance of Data Bank of Independent Directors) Rules, 2019 include

3. Creation and Maintenance of Data Bank include –

1. The institution shall create and maintain the data bank of persons interested and qualified to be designated as Independent Director, such data bank shall place one institution’s website.

    

2. The data bank mentioned in sub-rule (1) shall contain the following details in regard to every person-

(a) DIN (Director Identification Number), if suitable;

(b) Income Tax PAN Number;

(c) name and surname in full form;

(d) father’s name;

(e) date of birth;

(f) gender;

(g) citizenship;

(h) job or employment;

(i) Address along with PIN Code ( including current & permanent);

(j) phone number;

(k) e-mail id;

(l) the educational and professional skills;

(m) experience or proficiency, if any;

(n) any ongoing criminal trial as defined in clause (d) of sub-section (1) of section 164;

(o) the catalogue of limited liability partnerships in which he is or was appointed as a partner accompanied by–

(i) the limited liability partnership entity name;

(ii) the kind of the industry; and

(iii) the term – with dates;

(p) catalogue of companies in which he is or was working as director along with–

(i) name of the company;

(ii) type of the industry;

(iii) kind of directorship – Executive or Non-executive or Managing Director or Independent Director or Nominee Director; and

(iv) term – with dates.

3. The data provided only to companies required to designate the independent director by paying a fair fee to the institute.

4. A person may refuse his private information to be revealed in the data bank.

5. An individual whose name materialized in the data bank shall make changes within thirty days of such modification web-based structure made available by the institute for this purpose.

6. A disclaimer shall clearly be displayed on the website of data bank stating that a company must conduct due diligence before selecting any person as an independent director.

7. The Institute, shall with the advance permission of the Central Government decide a fair fee to be charged from:-

1. Individuals for the involvement of their names in the data bank of the independent director; and

    

2. Companies for accommodating information on independent director accessible on data bank

Explanation:- For the purpose of this rule, the expression “person willing and eligible to be appointed as an independent director ” shall comprise the person previously working as an independent director on the Board of Companies.

4. Duties of the institute-

1. The companies have to comply with the following with respect to the individual registered under data bank, like:

(a) Organise an online proficiency self-assessment test covering companies law, securities law, basic accountancy and various other subjects relevant for acting as an independent director;

(b) Prepare study material, online lessons, including audio-visual for easy reference of individual taking such a test;

(c) Provide an alternative for a person to take the advanced level test and prepare the necessary advanced study material in this regard:

Subject to this provision, no separate fees shall be charged in this regard.

2. The concerned institute has to share with the central government, the combined catalogue of all persons-

1. whose name included in the data bank accompanied by the date of involvement and their Income Tax PAN or Passport number in case of a foreign director.

2. Whose application request for the involvement in data bank discarded accompanied with reasons and dates of such dismissal
3. whose names have been eliminated from the data bank along with reasons and the date of such elimination.

5. Panel-

1. The panel consists of members not more than ten members decided by the Central Government, for the purpose of ratifying the framework of the courses and study material prepared by the Institute.

    

2. Panel pertained to subrule (1) shall consist of:-

(a) Secretary, Ministry of Corporate Affairs or his appointee;

(b) Director-General and Chief Executive Officer of the institute or his appointee;

(c) one member elected by the Department of Economic Affairs;

(d) one member decided by the Department of Public Enterprises;

(e) one member elected by the Securities and Exchange Board of India;

(f) at-least one representative from the stock exchange decided by the Central Government;

(g) at-least one representative from the industry elected by the Central Government; and

(h) at-least one representative from the academia appointed by the Central Government.

The Companies (Accounts) Amendment Rules, 2019 include

Rule 2:-   In the Companies (Accounts) Rules, 2014, in rule 8, in sub-rule (5), after clause (iii) following clause shall be inserted specifically:-

(iiia) An announcement in regard to the viewpoint of the Board for sincerity, skills and experience(comprising the proficiency) of the independent director elected during the year.

Explanation:- the “proficiency” indicates the proficiency of the independent director as determined from the online proficiency self-assessment test organised by the institute under subsection (1) of section 150.

In the Companies (Appointment and Qualification of Directors), 2014 with Sixth Amendment rules, 2020, for rule 6, the following rule shall be substituted, specifically:-

Rule 6:-   

1. In clause (a) of sub-rule (1), the word “three months” replaced with the word “five months”.

    

2. In the sub-rule (4), –

(i) For the first proviso, the given proviso shall be substituted, as:-

“Subject to this provision, if an individual has worked as a director or key managerial personnel, for an inclusive term of not less than ten years shall not be obliged to clear the online proficiency self-assessment test, as on the date of inclusion of his name in the databank, in one or more of the following, including:-

(a) listed public company; or

(b) an unlisted public company with paid-up share capital of rupees ten crores or more; or

(c) body corporate listed on a recognized stock exchange.

(ii) in the second proviso, the word “companies or bodies corporate” replaced with the word “companies”.

How to Access the Data Bank?

The data bank created by MCA can be accessed either at www.mca.gov.in or www.independentdirectorsdatabank.in is a pioneering action of the Ministry to provide an easy to entrance & operate the platform for striving individuals to become an independent director as well as existing independent director. Here any companies can register to appoint the proficient independent director and get the required information about the independent directors by paying the amount of charge to the Indian Institute of Corporate Affairs (IICA).

How to register on Data Bank?

As per the rule prescribed, the independent directors who are presently working in the company as an independent director compelled to register themselves with data bank within the span of 5 months from 01 December 2019 i.e 30 April 2020.

They all required to clear the basic online proficiency self-assessment test which will be accessible from the  01 March 2020, within the 12 months consequently. In order to make them familiar online mock tests are also made accessible.

*Note:- There is exemption to any individual who has served for the period of not less than ten years on the date of the involvement of his name in the databank or key managerial personnel in (a) listed public company (b) Unlisted public company having a paid-up share capital of rupees ten crores or more (c) body corporate listed on a recognized stock exchange shall not be obliged to pass the online proficiency test.

Steps to be followed for Registration:-

Step 1:- Login by using the user ID on the Ministry of Corporate Affair Website,

Step 2:- After login user will be directed to the Data Bank,

Step 3:- If you have DIN then by submitting DIN, if not, then by submitting PAN, thereupon OTP will be generated at your mobile no. & by submitting OTP you can authenticate your details after the successful confirmation click on proceed button to obtain credentials for Databank in email,

Step 4:- Now, you have to choose the subscription plans to avail the study material and e-learning evaluation modules,

Step 5:- After payment, you can access your Independent director profile by using several options shortlist and download ID profile,

Step 6:- Perform your own due diligence while selecting designating the independent director from the Data Bank,

In the case of a Company, Enter the basic  CIN Details and click on submit then you can add two designated persons from the company who will also have access to the Data Bank Website.

Conclusion

The corporate industry is categorized in their view on this advancement. One thinks that the online Data Bank will improve the information and working of the IDs and make a larger scope of proficient people who could go about as Independent Directors. The other gathering imagines that the way toward making Data Bank and online tests may in reality further reduce the scope of IDs accessible as on date and is certainly not a reasonable advance step. Nonetheless, we are still to see the genuine effect of the said move and expectation that it should turn out as one of the dynamic advances that upgrade the corporate governance models across the companies boards in India.

Frequently Asked Questions (FAQs)

1. What are the important dates?

Answer:- Starting date for empanelment for Independent Directors & Companies- December 01, 2019

Last date for empanelment for the existing Independent Directors – April 30, 2020

Starting date for booking of Online Proficiency Self Assessment Test- December 02, 2020

Starting date for Mock (Practice) Test- December 02, 2020, & onwards

Starting date for Online Proficiency Self Assessment Test- March 01 2020

Starting date for corporate access and search facility- March 01 2020.

2. In case of the independent director already appointed or want to go with the present Independent Director of the company and not registered with the data bank.

Answer:- If the independent director does not register with the data bank the onus is upon the company to take liability and follow the prescribed time limits.

3. Is it mandatory for the private company to appoint an independent director and register with the data bank?

Answer:- It is not mandatory to get registered and appoint the independent director from the data bank however it’s advisable to appoint the independent director with a special resolution  (as per sub-sections (10) and (11) of section 149 of the Act, 2013] to promote corporate governance in the company.

4. Which device is suitable to give the test?

Answer:- It’s suitable to give the test on Laptop with a camera or desktop with an attached camera.

5. What is the fee of an online proficiency self-assessment test?

Answer:- There is a one-time fee of Rs 5000(+GST) for the online proficiency self-assessment test, you do not need to pay the fee again and again. The test can be given for an indefinite number of times.

6. What if I am not able to clear the test within 1 year?

Answer:- If the person is not able to secure 60% in the test within 1 year from the date of registration. Under the provision, he will be considered incapable and his name shall be removed from the data bank. As the test conducted only includes the basic problems which are essential for the person taking responsibility for corporate governance. Also, there is an indefinite number of attempts.

7. Can a foreign person register in the data bank?

Answer:- Yes, a foreign person can register under the data bank via passport for registering as an independent director.

8. Can Exempted Individual[ as given in Rule 6 sub-rule 4 conditions of  Companies (Appointment and Qualification of Directors), 2014 with Sixth Amendment rules, 2020] take the test voluntarily?

Answer:- Yes, they can take the test for self-assessment/analysis.

9. If any wrong information provided/  any correction change required and for modifying the data coming from MCA 21?

Answer:- For these given concern correction or modification you are required to file the DIR-6/DIR- 3.

10. What is the bar for maximum age to register with the data bank?

Answer:- There is no bar for the minimum or maximum age to register with the data bank as an Independent Director.

References:-

1. http://www.mca.gov.in/Ministry/pdf/CmpFifthAmndtRules_22102019.
2. http://www.mca.gov.in/Ministry/pdf/CmpInpdtDirectorsRules_22102019.pdf
3. http://www.mca.gov.in/Ministry/pdf/CmpAccAmndtRules_22102019.pdf
4. https://youtu.be/QmQ9624lbV
5. http://www.mca.gov.in/Ministry/pdf/rule_28022020.pdf

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