New Independent Directors Rules under Companies Act 2013

? Independent Director (Define): Means an independent director referred to in Section 149(6).

? Applicability of Independent Director Provisions:

  • Listed Company
  • The Public Companies having paid up share capital of 10cr or more; or
  • The Public Companies having turnover of 100cr or more; or
  • The Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50cr rupees.

? Exemption for Appointment from Independent Director:

Unlisted companies which are in a joint venture, wholly owned subsidiary or a dormant company as defined under section 455 of the Act and fulfilling the above requirements are not required to appoint Independent Directors.

? Role of an Independent Director

Independent Director Acts as a guide, coach and mentor to the company.  The role includes improving corporate credibility and governance standards by working as a watchdog and help in managing risk. Independent directors are responsible for ensuring better governance by actively involving in various committees set up by company.

  • The Ministry of Corporate Affairs (MCA) on October 22,2019 introduced the Companies (Creation and Maintenance of databank of Independent Directors) Rules,2019 and the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules,2019 and the Companies (Appointment and Qualification of Directors) fifth Amendment Rules,2019[collectively hereinafter referred to as “Independent Directors’],both being effective from December 01,2019.

? Here are some important pointers under the New Independent Directors rules:

-Ascertaining the Proficiency:

Proficiency means the proficiency of the independent director as ascertained from online proficiency self-assessment test conducted by the institute notified under sub-section (1) of Section 150 of Companies Act, 2013 i.e. IICA.

-Online application for inclusion of name in databank:

Any person who is willing to be appointed (or is already an) Independent Director, must apply online to the IICA for inclusion of his/her name in the date bank of Independent Directors and ensure compliances as required and pass an online proficiency self- assessment test.

It is essential for a person who is to be appointed or is already an Independent Director to make such online application before his appointment as Independent Director.

– Period of Name Inclusion in the Data Bank:

The inclusion of name in the data bank can be done for a period of one year or five years or for lifetime by payment of prescribed fees. The above rules also provide for renewal of such name inclusion in the data base, unless the individual has paid life-time fees for inclusion of his name in the data bank.

The online proficiency self-assessment test would be conducted by IICA and the passing marks for such test are Sixty percent (60%).

– Knowledge:

This Online proficiency Self-assessment test is intended to cover company’s law, securities law, basic accountancy and such other areas relevant to the functioning of an individual acting as an independent director.

-Time Period for Clearing the Test:

This online proficiency self-assessment test is required to be cleared by the individual, conducted by the IICA, within a period of one year from the date of inclusion of his name in the data bank, failing which, his name shall remove from the data bank of the IICA.

– Exemption:

The MCA has granted exemption from the requirement of clearing the said online proficiency self-assessment test in case of individuals who has served for a period of not less than ten years, as on the date of inclusion of his name in the data bank, as a director or Key Managerial Personnel (KMP) in a listed company or a Unlisted public company having paid-up share capital of Rupees Ten Crores or more.

– Information Availability:

The Information available in the data bank shall be provided only to companies required to appoint independent directors after paying reasonable fee to the IICA.

-Necessity for online proficiency self-assessment test

As Interests of the minority shareholders are expected to be protect by the Independent Directors, they act an s a Watch Dog for the purpose of ensuring corporate governance.

One can expect to have individuals who in their capacity to act as independent director to have diverse skill to serve as Independent Directors of Companies and to infuse some rationale decision making in the conduct of the activities of the Board of Director essentially to uphold highest standards of Corporate Governance.

– Empanelling of Independent Directors:

As per the Notifications, the Ministry of Corporate Affairs and Institute of Corporate Affairs (IICA) have introduced a comprehensive online databank for all existing and aspiring independent Directors need to empanel with this databank within 3 months of commencement of these rules.

The Companies can also access the databank after registration for researching and appointing directors to their companies.

Three basic steps to be followed are:

Step 1: Access MCA Portal:

Individuals who wish to empanel with the Independent Director’s Databanks has to start the empanelment process by accessing the website of MCA. Existing directors can access through their DIN, other professionals can access through PAN or Passport. Foreign nationals without DIN/PAN can also visit MCA21 and empanel with the databank through their Passport Number and by providing basic contract information such as email, mobile number etc.

Step 2: Redirected to Databank Portal

On verification by MCA21 portal, the user will be automatically redirected to the independent Director’s Databank. The user can log in to the Databank by using the credentials send to the registered email.

The MCA21 data will be auto-populate in the Profile page of the databank. The user had to fill the details of personal, professional, and educational. Also need to mention the KMP positions held by the independent Director.

The Director can opt to display the personal details on the databank.

STEP 3: Choose Subscription Plan

  • The user can choose the subscription plan of their choice. There are three different subscription plans available -1 year, 5 years and lifetime. the fee for 1 year is Rs. 5,000 + 18% GST. The fee plan for 5 years and Lifetime will be notified later.
  • Once the plan is selected, the user will be directed to payment gateway where the payment can be made through online banking, debit card /credit card, payment apps, etc.
  • An invoice will be issued once the payment process is complete.

-Objectives of Independent Director Data Bank:

  • Building capacities of Individuals by providing online learning courses on topics related to corporate governance, regulatory framework, financial prudence, and other important aspects.
  • Creating eco-system of individuals looking for opportunities and corporate requiring to appoint Independent Directors.
  • Developing a databank of Independent directors by empanelling the existing Independent Directors as well as the professionals aspiring to become Independent Directors.
  • It provides a platform to individuals to help them to acquire knowledge, assess their understanding, develop new skills and apply best practices.


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