The Ministry of Corporate Affairs (“MCA”), has vide its notification dated June 10, 2022, notified the Companies (Appointment and Qualification of Directors) Second Amendment, Rules, 2022 (“Amendment”) to amend the Companies (Appointment and Qualification of Directors) Rules, 2014 (“Directors Rules”).
Existing position: Rule 6(1) of the Directors Rules provides that every individual who intends to get appointed as an independent director in a company shall before such appointment, apply online to the Indian Institute of Corporate Affairs at Manesar (designated for the creation and maintenance of data bank of Independent Directors) (“Institute”) for inclusion of his name in the data bank for a period of one year or five years or for his life-time, and from time to time take steps as specified in sub-rule (2) of Rule 6 of the Directors Rules, till he continues to hold the office of an independent director in any company.
Sub-rule (4) of Rule 6 provides that “Every individual whose name is so included in the data bank under sub-rule (1) shall pass an online proficiency self-assessment test conducted by the institute within a period of two years from the date of inclusion of his name in the data bank, failing which, his name shall stand removed from the databank of the institute.” The afore-mentioned provision also specifies a list of individuals who shall not be required to pass the online proficiency self-assessment test such as a person who has served for a total period of not less than three years as on the date of inclusion of his name in the data bank, as director or key managerial personnel in a listed public company or an unlisted public company having a paid-up share capital of rupees ten crore or more.
Position after the Amendment: The Amendment provides for insertion of the following sub-rule, after sub-rule (4) in Rule 6 of the Directors Rules:
“(5) Any individual whose name has been removed from the databank under sub-rule (4), may apply for restoration of his name on payment of fees of one thousand rupees and the institute shall allow such restoration subject to the following conditions, namely :-
i. his name shall be shown in a separate restored category for a period of one year from the date of restoration within which, he shall be required to pass the online proficiency self-assessment test and thereafter his name shall be included in the databank, only, if he passes the said online proficiency self-assessment test and in such case, the fees paid by him at the time of initial registration shall continue to be valid for the period for which the same was initially paid; and
ii. in case he fails to pass the online proficiency self-assessment test within one year from the date of restoration, his name shall be removed from the data bank and he shall be required to apply afresh under sub-rule (1) for inclusion of his name in the databank.”
Impact of the Amendment: Independent directors are integral to ensuring good corporate governance of a company. The Amendment provides an individual whose name has been removed from the data bank of independent directors, an opportunity of his getting his name restored, without compromising on the standards set by law for independent directors.
Please find a copy of the Amendment, here.
This update has been contributed by Smriti Tripathi (Senior Assoicate).
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